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NH Life & Health practice questions

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Question 1Insurance Regulation

Which body enforces New Hampshire's insurance laws and licenses insurance producers?

  1. The federal Insurance Office of the Treasury
  2. The New Hampshire Division of Banking
  3. The New Hampshire Insurance Department Correct answer.
  4. The New Hampshire Secretary of State's office

Explanation

The New Hampshire Insurance Department, headed by the Insurance Commissioner, administers the state's insurance code and oversees producer licensing and market conduct. Other state agencies handle business filings or banking, not insurance producer licensing. The federal government does not license state insurance producers.

Question 2Insurance Regulation

A person who wants to sell life insurance in New Hampshire for an insurer must first obtain what?

  1. A notary public commission
  2. An insurance producer license Correct answer.
  3. A securities dealer registration
  4. A real estate broker license

Explanation

Selling, soliciting, or negotiating insurance requires an insurance producer license for the applicable line of authority. A securities registration, notary commission, or real estate license does not authorize insurance sales.

Question 3Insurance Regulation

Money a producer collects as premiums for an insurer is treated as what?

  1. A refundable deposit owned by the producer
  2. A fee earned when the application is signed
  3. Trust funds held in a fiduciary capacity Correct answer.
  4. A personal loan from the applicant

Explanation

Premiums collected on behalf of an insurer are held in trust and must be accounted for and remitted promptly. The producer may not treat them as personal funds or earned compensation before the insurer is paid.

Question 4Insurance Regulation

A producer who offers a prospect part of the commission to encourage a purchase is engaged in what?

  1. Coercion
  2. Rebating Correct answer.
  3. Twisting
  4. Defamation

Explanation

Rebating is offering an inducement, such as a share of commission or an unreported benefit, that is not stated in the policy. It is an unfair trade practice because it gives selected buyers an advantage not reflected in the contract.

Question 5Insurance Regulation

Misrepresenting a policy to persuade a policyholder to surrender existing coverage is known as what?

  1. Twisting Correct answer.
  2. Reinsurance
  3. Adverse selection
  4. Rebating

Explanation

Twisting is a misrepresentation or incomplete comparison used to induce a policyholder to lapse, surrender, or replace existing coverage. It is prohibited because it deprives the policyholder of informed choice.

Question 6Insurance Regulation

The New Hampshire Life and Health Insurance Guaranty Association generally covers a life insurance death benefit up to what amount?

  1. $100,000
  2. $300,000 Correct answer.
  3. $500,000
  4. $1,000,000

Explanation

The guaranty association provides limited protection when a member insurer becomes insolvent. Under the standard life and health guaranty limits, a life insurance death benefit is covered up to $300,000.

Question 7Insurance Regulation

Before a producer may solicit business for an insurer, the insurer must generally do what?

  1. Appoint the producer with the Insurance Department Correct answer.
  2. Obtain a federal insurance charter for the producer
  3. Issue the producer a temporary license
  4. File the producer's exam score with the NAIC

Explanation

An insurer authorizes a licensed producer to act for it by filing an appointment with the Insurance Department. The license alone does not permit the producer to represent every insurer.

Question 8Insurance Regulation

A licensed producer may share a commission on a life insurance sale with whom?

  1. Another producer licensed for life insurance Correct answer.
  2. An unlicensed marketing firm that mailed flyers
  3. An unlicensed office assistant who referred the client
  4. The applicant as an inducement to buy

Explanation

Commissions may be split only with persons who are properly licensed for the line of insurance involved. Paying an unlicensed person for a referral or giving the buyer a commission rebate violates insurance law.

Question 9Insurance Regulation

New Hampshire resident producers generally must complete continuing education of what amount?

  1. 12 hours every two years, including 1 hour of ethics
  2. No continuing education after the first license renewal
  3. 24 hours every two years, including 3 hours of ethics Correct answer.
  4. 36 hours every two years, including 6 hours of ethics

Explanation

New Hampshire requires resident producers to complete 24 continuing education credit hours every two years, including at least 3 hours in ethics. Continuing education must continue throughout the producer's career.

Question 10Insurance Regulation

A licensed New Hampshire producer who changes a residence address must notify the Insurance Department within what period?

  1. 30 days Correct answer.
  2. 10 days
  3. 180 days
  4. 90 days

Explanation

A producer must keep licensing information current and notify the Insurance Department of a change of address within 30 days. Prompt notice allows official correspondence and service of process to reach the producer.

Question 11Insurance Regulation

When an insurer terminates a producer's appointment for cause, it must notify the Insurance Commissioner within what period?

  1. 5 days
  2. 10 days
  3. 30 days Correct answer.
  4. 60 days

Explanation

Insurers must report termination of a producer appointment for cause to the Insurance Commissioner within 30 days. This reporting helps the Department track conduct that may affect the producer's license.

Question 12Insurance Regulation

An individual life insurance policy delivered in New Hampshire generally gives the owner a free-look period of at least what length?

  1. 7 days
  2. 5 days
  3. 3 days
  4. 10 days Correct answer.

Explanation

Individual life insurance policies delivered in New Hampshire generally include a free-look period of at least 10 days. During that time the owner may return the policy for a refund of premium.

Question 13Insurance Regulation

A producer who replaces an existing life insurance policy must generally give the applicant what?

  1. A credit report from the insurer
  2. A copy of the insurer's tax return
  3. A Medicare summary notice
  4. A written replacement notice Correct answer.

Explanation

Replacement rules require a written notice so the applicant understands that existing coverage will be replaced and can compare the changes. The insurer and producer must also follow specific disclosure and recordkeeping requirements.

Question 14Insurance Regulation

A producer who suspects an insurance fraud scheme should report it to whom?

  1. The applicant's bank only
  2. The local Better Business Bureau
  3. The New Hampshire Insurance Department Correct answer.
  4. The National Association of Insurance Commissioners

Explanation

Suspected insurance fraud should be reported to the New Hampshire Insurance Department, which has an insurance fraud unit. Reporting suspected fraud helps protect consumers and the insurance market.

Question 15Insurance Regulation

Under federal privacy rules, a health insurance producer generally must provide customers with what?

  1. A list of all other policyholders
  2. A certificate of authority from the state
  3. A notice describing privacy practices Correct answer.
  4. A copy of the insurer's rate filing

Explanation

Federal privacy rules require covered entities, including many health insurance producers, to provide a privacy notice explaining how personal information is used and shared. The notice also explains customer rights and the entity's safeguards.

Question 16Insurance Regulation

An insurer publishes a false statement that a competing insurer is near insolvency. This unfair practice is what?

  1. Coercion of a client
  2. An unlawful rebate
  3. Twisting of coverage
  4. Defamation Correct answer.

Explanation

Defamation in insurance is a false or maliciously critical statement about an insurer's financial condition or business that is calculated to injure it. Publishing such a statement is an unfair trade practice.

Question 17Insurance Regulation

If the Commissioner finds an unlicensed person selling insurance, the Commissioner may do what?

  1. Issue a cease-and-desist order Correct answer.
  2. Wait until a consumer files a lawsuit
  3. Only refer the matter to a federal agency
  4. Only send a warning letter to the person

Explanation

The Insurance Commissioner has authority to stop unauthorized insurance activity, including by issuing cease-and-desist orders and imposing penalties. The Department does not have to wait for a consumer lawsuit before acting.

Question 18Insurance Regulation

A producer deposits client premiums in a personal bank account and uses the funds for office expenses. This conduct is best described as what?

  1. A lawful premium finance arrangement
  2. A permissible advance commission
  3. An approved replacement transaction
  4. Commingling of fiduciary funds Correct answer.

Explanation

Premiums held for an insurer are fiduciary funds and must be kept separate from the producer's personal or business operating money. Mixing them with personal funds is commingling and is prohibited.

Question 19Insurance Regulation

When recommending an annuity to a New Hampshire consumer, a producer must generally do what?

  1. Replace any existing annuity within the first year
  2. Sell only the annuity with the lowest surrender charge
  3. Act in the consumer's best interest and keep records Correct answer.
  4. Avoid documenting the basis for the recommendation

Explanation

Annuity sales are subject to suitability and best-interest standards that require the producer to consider the consumer's needs and document the recommendation. Recordkeeping supports accountability for that recommendation.

Question 20Insurance Regulation

A producer who sells long-term care insurance in New Hampshire must complete what training?

  1. Initial and ongoing training Correct answer.
  2. A 1-hour course every five years
  3. A 40-hour course before each sale
  4. Only a 2-hour course once

Explanation

Long-term care insurance producers must complete an initial training course and ongoing refresher training. These requirements are intended to ensure producers understand long-term care coverage and can make suitable recommendations.

Question 21General Insurance Concepts

Insurance is best described as a mechanism that does which of the following?

  1. Protects against losses from speculative investments
  2. Operates as an interest-bearing savings account
  3. Removes every possibility of financial loss
  4. Transfers pure risk from an individual to an insurer Correct answer.

Explanation

Insurance transfers the financial consequences of pure risk from the insured to a large pool administered by the insurer. The chance of loss still exists; what changes is who bears the financial cost when a loss occurs. Speculative risk, which carries the chance of gain as well as loss, is not insurable.

Question 22General Insurance Concepts

In life insurance, insurable interest must exist at which point?

  1. At every policy anniversary
  2. At the time the insured dies
  3. Only when the beneficiary files a claim
  4. At the time the application is made Correct answer.

Explanation

For life insurance, insurable interest is required only when the policy is applied for, because that is when the contract is formed and the moral risk is measured. The beneficiary does not need to show an interest at the time of the insured's death. Property insurance follows a different rule and requires insurable interest at the time of loss.

Question 23General Insurance Concepts

Which of the following is an example of a pure risk?

  1. Owning a home that could be damaged by fire Correct answer.
  2. Betting on a horse race
  3. Speculating in commodity futures contracts with borrowed money
  4. Buying stock in a new company

Explanation

Pure risk involves only the chance of loss or no loss, with no possibility of gain, and it is the category of risk that insurance is designed to handle. Speculative risk offers the chance of profit as well as loss and is generally considered uninsurable.

Question 24General Insurance Concepts

An icy sidewalk in front of a store is an example of which type of hazard?

  1. Legal hazard
  2. Morale hazard
  3. Moral hazard
  4. Physical hazard Correct answer.

Explanation

A physical hazard is a tangible condition that increases the chance or severity of a loss, such as ice, faulty wiring, or a wet floor. Moral and morale hazards arise instead from the attitudes or conduct of the insured.

Question 25General Insurance Concepts

An insurer that is incorporated under the laws of the state in which it is selling policies is classified as what?

  1. A domestic insurer Correct answer.
  2. A surplus lines insurer
  3. An alien insurer
  4. A foreign insurer

Explanation

Domicile classifications are relative to the state in question: an insurer incorporated in that state is domestic, one incorporated in another state is foreign, and one incorporated in another country is alien. The classification does not by itself describe how the insurer markets its products.

Question 26General Insurance Concepts

Which statement accurately describes a stock insurance company?

  1. It is prohibited from issuing nonparticipating policies
  2. It is owned by shareholders who may receive dividends Correct answer.
  3. It is owned by its policyholders
  4. It must return all earnings to its policyholders as dividends

Explanation

A stock insurer is a corporation owned by stockholders, and dividends paid to those shareholders come from company profits and are taxable to the recipients. A mutual insurer is instead owned by its policyholders and may distribute non-taxable policy dividends.

Question 27General Insurance Concepts

The law of large numbers allows an insurer to do which of the following?

  1. Predict losses more accurately as the insured pool grows Correct answer.
  2. Increase premiums as the number of insureds grows
  3. Charge the same rate for all types of coverage
  4. Ignore the differences in risk among individual applicants

Explanation

The law of large numbers holds that actual loss experience approaches expected loss experience as the number of similar exposure units increases. That greater predictability is what allows an insurer to set rates and hold adequate reserves with confidence.

Question 28General Insurance Concepts

An insurer tightens its underwriting requirements to reduce the likelihood that only high-risk applicants will buy its coverage. This practice is intended to control which of the following?

  1. Concealment
  2. Adverse selection Correct answer.
  3. Estoppel
  4. Subrogation

Explanation

Adverse selection is the tendency of persons with a greater-than-average chance of loss to seek insurance more eagerly than those with lower risk. Underwriting standards, exclusions, and waiting periods keep that disproportionate buying from destabilizing the insurance pool.

Question 29General Insurance Concepts

The principle of indemnity means that a property insurance payment should do which of the following?

  1. Equal the full face amount of the policy regardless of loss
  2. Pay the insured twice the amount of the covered damage
  3. Provide the insured with a profit above the actual amount of the loss
  4. Restore the insured to roughly the pre-loss financial position Correct answer.

Explanation

Indemnity is the principle that the insured should be returned to approximately the same financial position held before the loss, no better and no worse. It is why property policies use valuation methods such as actual cash value and why overinsurance and double recovery are discouraged.

Question 30General Insurance Concepts

An insurance policy is described as an aleatory contract because it does which of the following?

  1. Requires both parties to exchange equal premium for equal coverage
  2. May be changed only with the written consent of both parties
  3. Binds only the policyholder to a legal obligation
  4. Exchanges values that are unequal and contingent on chance Correct answer.

Explanation

An aleatory contract exchanges values that are unequal and depend on chance, so a small premium may produce a large claim payment or no payment at all. That event-dependent, unequal exchange is what distinguishes it from a contract in which the parties exchange equivalent values.

Question 31General Insurance Concepts

Because an insurance policy is a contract of adhesion, ambiguities in the policy language are generally interpreted how?

  1. In whatever manner produces the lowest claim payment
  2. In favor of the insurer that drafted the policy
  3. By the state insurance department before any claim is paid out
  4. In favor of the policyholder who had no part in drafting it Correct answer.

Explanation

A contract of adhesion is prepared by one party and accepted or rejected by the other, so ambiguous wording is construed against the drafter under the rule of contra proferentem. The reasonable expectations of the policyholder also influence how unclear terms are read.

Question 32General Insurance Concepts

An applicant for life insurance misstates her age on the application without intending to deceive the insurer. The statement is best classified as what?

  1. A warranty, which must be absolutely true or the entire policy is void
  2. A concealment of a material fact that voids the policy automatically
  3. A waiver that gives up the insurer's right to rescind the policy
  4. A representation, believed true to the best of the applicant's knowledge Correct answer.

Explanation

A representation is a statement made to the best of the applicant's knowledge and need only be substantially true rather than absolutely true. A warranty is a guarantee treated as material to the risk, and an untrue warranty can void the contract regardless of intent.

Question 33General Insurance Concepts

An insurer's agent accepts a late premium payment even though the policy had lapsed, and the insurer later denies coverage for the same period. Which legal doctrines most directly support the policyholder's position?

  1. Subrogation and salvage
  2. Reformation and rescission
  3. Coinsurance and contribution
  4. Waiver and estoppel Correct answer.

Explanation

Waiver is the voluntary surrender of a known right, and estoppel prevents a party from later asserting a right when its own conduct led another to rely on it to that person's detriment. Accepting the late premium waives the right to enforce the lapse for that period, and the insurer cannot then deny coverage.

Question 34General Insurance Concepts

An agent who has no written authority nevertheless collects premiums and binds coverage in a manner the insurer has consistently permitted. In this case the agent is acting under which type of authority?

  1. Express authority
  2. Apparent authority Correct answer.
  3. Statutory authority
  4. Reserved authority

Explanation

Apparent authority arises from the insurer's words or conduct that lead a reasonable third party to believe the agent has the power to act, and the insurer is bound by it. Express authority is granted in writing through the agency contract, while implied authority covers acts reasonably necessary to carry out that express authority.

Question 35General Insurance Concepts

Which set of elements is required for an insurance policy to be a legally enforceable contract?

  1. Insurable interest, indemnification, subrogation, and salvage
  2. Application, medical examination, scheduled premium payment, and physical inspection
  3. Offer and acceptance, consideration, legal purpose, and competent parties Correct answer.
  4. Underwriting, rating, policy issuance, and delivery to the insured

Explanation

Every valid contract requires an offer, an acceptance, consideration exchanged by both parties, a lawful purpose, and parties with legal capacity. In insurance, the application is usually the offer and the issued policy is the acceptance, while the premium and the insurer's promise to pay claims are the consideration.

Question 36General Insurance Concepts

Which statement best describes reinsurance?

  1. A pool that pays claims of insolvent insurance companies
  2. Insurance purchased by an insurer to spread its assumed risk Correct answer.
  3. A consumer policy that supplements Medicare coverage
  4. Coverage written through a surplus lines broker for unusual, hard-to-place risks

Explanation

Reinsurance is insurance for insurers: the ceding company transfers part of the risk it has already assumed to a reinsurer in exchange for part of the premium. It increases the primary insurer's capacity and stabilizes results, but it does not change the coverage the original insured purchased.

Question 37General Insurance Concepts

An insured's covered auto collision is caused by another driver's negligence. After the insurer pays the claim, it pursues the at-fault driver to recover the amount paid. Which principle permits the insurer to do this?

  1. Subrogation Correct answer.
  2. Abandonment
  3. Contribution
  4. Coinsurance

Explanation

Subrogation transfers to the insurer, after it pays the claim, the insured's legal right to recover from the party responsible for the loss. It supports the indemnity principle by preventing the insured from collecting twice while still holding the at-fault party accountable.

Question 38General Insurance Concepts

A policyholder holds a life insurance policy issued by a member insurer that becomes insolvent. In the United States, protection against loss typically comes from which source?

  1. The state life and health insurance guaranty association Correct answer.
  2. The Federal Deposit Insurance Corporation
  3. The National Association of Insurance Commissioners directly
  4. The reinsurer that assumed the policy

Explanation

Each state has a life and health insurance guaranty association, funded by member insurers, that provides limited benefits when a licensed insurer is declared insolvent. The NAIC drafts model laws and coordinates state regulators, but it does not itself pay policyholder claims.

Question 39General Insurance Concepts

An insurer reports incurred losses of $60 million, operating expenses of $35 million, and written premiums of $100 million. What is its combined ratio?

  1. 95% Correct answer.
  2. 5%
  3. 60%
  4. 135%

Explanation

The combined ratio is the loss ratio plus the expense ratio: $60 million divided by $100 million equals 60%, plus $35 million divided by $100 million equals 35%, for a total of 95%. A combined ratio below 100% indicates an underwriting profit before investment results are considered.

Question 40General Insurance Concepts

Under the McCarran-Ferguson Act, how is the business of insurance regulated in the United States?

  1. By the federal courts alone, through case law
  2. Exclusively by federal agencies such as the Securities and Exchange Commission
  3. Jointly by the states and the NAIC, which issues binding rules
  4. Primarily by the states Correct answer.

Explanation

The McCarran-Ferguson Act of 1945 confirmed that the states regulate the business of insurance, with federal law applying only where the states have not acted and where the conduct is not specific to insurance. The NAIC drafts model laws and coordinates state regulators but has no rulemaking or enforcement authority of its own.

Question 41Life Insurance Basics

The primary mechanism by which life insurance spreads the cost of individual losses across a large group of people is known as

  1. Risk pooling Correct answer.
  2. Reinsurance
  3. Speculation
  4. Adverse selection

Explanation

Insurance works by pooling the premiums of many exposure units so that the losses suffered by a few are paid from funds contributed by the whole group. This sharing of losses is what makes the cost of protection predictable for each individual. Adverse selection, reinsurance, and speculation describe different concepts entirely.

Question 42Life Insurance Basics

For a life insurance policy, insurable interest must exist at which point?

  1. When the application is made and the policy is issued Correct answer.
  2. Only when the beneficiary designation is changed
  3. At the moment of the insured's death
  4. Continuously throughout the entire policy term

Explanation

Life insurance requires insurable interest only at the time the contract is formed, because the purpose is to prevent the purchase of coverage as a wager on a human life. The policy stays valid even if the relationship later ends, such as through divorce. Property insurance is the line that requires interest at the time of loss.

Question 43Life Insurance Basics

Life insurance premium rates are built from three primary factors: mortality, interest, and which of the following?

  1. Morbidity
  2. Persistency
  3. Expense Correct answer.
  4. Inflation

Explanation

The three basic rate-making elements for life insurance are mortality (expected deaths), interest (earnings assumed on invested reserves), and expense (commissions, taxes, and operating costs). Morbidity is the corresponding factor for health insurance, not life insurance.

Question 44Life Insurance Basics

A beneficiary who is designated to receive the policy proceeds only if the primary beneficiary dies before the insured is called a

  1. Irrevocable beneficiary
  2. Revocable beneficiary
  3. Contingent beneficiary Correct answer.
  4. Estate beneficiary

Explanation

A contingent, or secondary, beneficiary stands second in line and is paid only when the primary beneficiary is not living at the insured's death. A revocable beneficiary may be changed freely by the owner, while an irrevocable beneficiary has a vested interest the owner cannot eliminate without consent.

Question 45Life Insurance Basics

Under the standard grace period provision, coverage continues for how long after a premium due date when the premium has not been paid?

  1. 20 days
  2. 60 days
  3. 31 days Correct answer.
  4. 10 days

Explanation

The standard grace period in life insurance is 31 days, although a few states require 30. Coverage remains in force during this period, and if the insured dies within it the overdue premium is subtracted from the death benefit.

Question 46Life Insurance Basics

Which nonforfeiture option uses the net cash value of a whole life policy as a single premium to purchase a smaller amount of permanent coverage with no further premiums due?

  1. Automatic premium loan
  2. Cash surrender
  3. Reduced paid-up Correct answer.
  4. Extended term insurance

Explanation

Reduced paid-up insurance converts the net cash value into a single premium that buys a lower face amount of permanent protection that is fully paid up. Extended term instead keeps the original face amount in force for a limited number of years.

Question 47Life Insurance Basics

A policyowner wants to change the beneficiary on her policy, but the agent explains she cannot do so without the current beneficiary's written consent. What does this indicate?

  1. The policy is owned by a trust
  2. The beneficiary designation is irrevocable Correct answer.
  3. The insured has waived the right to change the beneficiary
  4. The policy has already been absolutely assigned to another party

Explanation

An irrevocable beneficiary holds a vested interest, so the owner cannot change the designation or take certain other policy actions without that person's written consent. If the designation were revocable, the owner could change it unilaterally at any time.

Question 48Life Insurance Basics

After a life insurance policy has been in force for two years during the insured's lifetime, the insurer generally may no longer contest the policy because of

  1. A change of beneficiary made by the owner
  2. Suicide committed within the first two years
  3. Failure by the owner to pay a premium when due
  4. Misrepresentation on the application Correct answer.

Explanation

The incontestability clause bars the insurer, after the policy has been in force for the contestable period (usually two years from issue during the insured's lifetime), from denying the claim because of misstatements or concealment in the application. Nonpayment of premium and suicide are addressed by separate policy provisions.

Question 49Life Insurance Basics

An insured's true age was understated on the application, and the insured has now died. The insurer will most likely

  1. Pay the full face amount as stated in the policy
  2. Pay the face amount less any outstanding policy loans
  3. Adjust the benefit to the correct-age amount Correct answer.
  4. Deny the claim and return the premiums paid

Explanation

The misstatement of age provision, which is not limited by the incontestability clause, requires the insurer to pay the amount the premium actually paid would have purchased at the insured's correct age. Understating age reduces the benefit; overstating age increases it.

Question 50Life Insurance Basics

If the insured dies by suicide during the policy's contestable period, the insurer typically pays

  1. Twice the amount of premiums paid
  2. A refund of the premiums paid Correct answer.
  3. The full face amount
  4. The policy's cash value only

Explanation

Under the suicide clause, a death by suicide within the stated period (usually two years) limits the insurer's liability to a return of the premiums paid. Once that period expires, suicide is treated like any other cause of death and the full benefit is payable.