Free accident and health insurance exam practice questions

Topics in this practice set

• Health plan types and cost sharing: indemnity, HMO, PPO, POS and high-deductible plans
• Affordable Care Act basics, group health, COBRA and HIPAA at the concept level
• Individual health policy provisions, renewability and claims concepts
• Medicare Parts A, B, C and D, Medicare Supplement and Medicaid basics
• Disability income insurance, long-term care insurance and workers compensation concepts
• Business uses of disability coverage, accident-only and dental or vision coverage

30 Accident & Health Insurance practice questions with answers and rationales

Work each question first, then open the answer. Every explanation says why the right choice is right and why each wrong choice fails.

1. Question 1 · Accident and health insurance: health plan types

   A member of a traditional HMO wants to see a dermatologist. Under the usual HMO design, what must the member do for the visit to be covered?

   1. A. Select any dermatologist and file a claim for reimbursement afterward
   2. B. Pay the full cost first, because HMOs never cover specialists
   3. C. Meet the annual deductible in full before any specialist visit
   4. D. Obtain a referral from the primary care physician and use a network dermatologist
   Show the answer and rationale

   Correct answer: D. Obtain a referral from the primary care physician and use a network dermatologist

   A traditional HMO delivers care through a contracted network and generally requires members to choose a primary care physician who coordinates care and issues referrals to network specialists. Except for emergencies, care outside the network is typically not covered.

   • A: That describes indemnity-style freedom of choice, not the HMO network design.
   • B: HMOs do cover specialist care when the referral and network rules are followed.
   • C: Many HMOs use copays and have no deductible; a deductible is not a prerequisite for specialist visits.

   Sources: HealthCare.gov Glossary (HMO)

2. Question 2 · Accident and health insurance: health plan types

   An insured under a PPO receives covered care from a physician who is not in the PPO's provider network. Which statement best describes how the plan generally responds?

   1. A. The plan pays nothing, because PPOs cover in-network care only
   2. B. The plan covers the care only if the insured first obtained a gatekeeper referral
   3. C. The plan covers the care but the insured typically pays higher cost sharing than for in-network care
   4. D. The plan pays the same as for in-network care, because PPO networks are only advisory
   Show the answer and rationale

   Correct answer: C. The plan covers the care but the insured typically pays higher cost sharing than for in-network care

   A PPO contracts with a network of preferred providers who accept negotiated fees. Members may also use non-network providers, but the plan generally pays a lower share, leaving the insured with higher deductibles and coinsurance and possibly balance billing.

   • A: Paying nothing out of network is typical of a traditional HMO, not a PPO.
   • B: PPOs usually do not require gatekeeper referrals to see specialists.
   • D: The financial incentive to use the network is the key PPO feature, so out-of-network benefits are lower.

   Sources: HealthCare.gov Glossary (PPO)

3. Question 3 · Accident and health insurance: health plan types

   A health plan requires members to select a primary care physician and obtain referrals for in-network specialists, yet it also lets members receive care outside the network at a reduced benefit level. This plan is best classified as a:

   1. A. Traditional indemnity plan
   2. B. Point-of-service (POS) plan
   3. C. Health savings account
   4. D. Exclusive provider organization (EPO)
   Show the answer and rationale

   Correct answer: B. Point-of-service (POS) plan

   A POS plan blends HMO and PPO features: members use a primary care physician and referrals for the lowest cost in-network care, but may choose to go out of network at the time of service and pay more.

   • A: Indemnity plans have no network or gatekeeper and reimburse for any provider.
   • C: An HSA is a tax-advantaged account, not a type of health plan design.
   • D: An EPO generally provides no out-of-network benefits except emergencies.

   Sources: HealthCare.gov Glossary (POS)

4. Question 4 · Accident and health insurance: health plan types

   Which feature most clearly distinguishes a traditional indemnity (fee-for-service) health plan from managed care plans?

   1. A. Insureds must choose a primary care physician who controls referrals
   2. B. Providers are paid a fixed monthly capitation payment per enrolled member
   3. C. Benefits are payable only when care is received from employed staff of the insurer
   4. D. Insureds may choose any licensed provider, and the plan reimburses covered expenses subject to its deductible and coinsurance
   Show the answer and rationale

   Correct answer: D. Insureds may choose any licensed provider, and the plan reimburses covered expenses subject to its deductible and coinsurance

   In an indemnity plan, the insured may use any provider and the insurer reimburses covered charges after the deductible and coinsurance. Managed care plans instead channel members to contracted networks and use tools such as referrals and negotiated fees.

   • A: Gatekeeper primary care physicians are a managed care feature.
   • B: Capitation is a managed care payment method, typically used by HMOs.
   • C: Care limited to insurer-employed providers describes a staff-model HMO, not indemnity coverage.

   Sources: HealthCare.gov Glossary (HMO); HealthCare.gov Glossary (PPO)

5. Question 5 · Accident and health insurance: health plan types: HDHP and HSA

   A person covered by an HSA-eligible high deductible health plan contributes to a health savings account and later uses the funds to pay the plan's deductible. Which description of the HSA's general tax treatment is correct?

   1. A. Contributions are pre-tax, earnings grow untaxed, and withdrawals for qualified medical expenses are not taxed
   2. B. Contributions are pre-tax, but earnings are taxed each year and withdrawals are always taxed
   3. C. Contributions are after-tax, but withdrawals for any purpose are tax free
   4. D. Contributions are pre-tax, but unused funds are forfeited at year end
   Show the answer and rationale

   Correct answer: A. Contributions are pre-tax, earnings grow untaxed, and withdrawals for qualified medical expenses are not taxed

   An HSA may be funded only by a person covered under an HSA-eligible high deductible health plan. Money set aside is pre-tax, earnings are not taxable, and withdrawals for qualified medical expenses are tax free. The account belongs to the individual and does not expire at year end.

   • B: Earnings in an HSA are not taxed, and qualified withdrawals are tax free.
   • C: Tax-free withdrawals require qualified medical expenses; nonqualified withdrawals are generally taxed.
   • D: Forfeiture at year end describes a typical flexible spending account, not an HSA.

   Sources: HealthCare.gov Glossary (HSA); IRS Publication 969

6. Question 6 · Accident and health insurance: cost sharing

   An insured's plan has a $1,000 annual deductible, 80/20 coinsurance after the deductible, and a $2,500 annual out-of-pocket maximum. The insured incurs $11,000 in covered in-network charges in the plan year and has no other claims. How much does the insured pay for these charges?

   1. A. $3,000
   2. B. $2,500
   3. C. $2,000
   4. D. $1,000
   Show the answer and rationale

   Correct answer: B. $2,500

   Applying the plan terms, the insured would owe $1,000 plus 20% of the remaining $10,000, or $3,000. But the out-of-pocket maximum caps the insured's cost sharing for covered services at $2,500, after which the plan pays 100% of covered expenses.

   • A: $3,000 ignores the out-of-pocket maximum cap.
   • C: $2,000 counts coinsurance only and omits the deductible, which also counts toward the cap.
   • D: $1,000 counts only the deductible and ignores the coinsurance owed.

   Sources: HealthCare.gov Glossary (OOP); HealthCare.gov Glossary (CO)

7. Question 7 · Accident and health insurance: cost sharing

   Which of the following amounts paid by an insured for covered in-network care generally counts toward the plan's annual out-of-pocket maximum?

   1. A. Coinsurance payments
   2. B. Monthly premiums
   3. C. Charges for services the plan excludes from coverage
   4. D. Balance bills from out-of-network providers
   Show the answer and rationale

   Correct answer: A. Coinsurance payments

   The out-of-pocket maximum limits what an insured pays in cost sharing for covered, in-network services in a plan year. Deductibles, copayments and coinsurance count toward it; premiums and non-covered or out-of-network balance-billed amounts generally do not.

   • B: Premiums are the price of coverage, not cost sharing, and do not count toward the maximum.
   • C: Excluded services are not covered, so spending on them does not count.
   • D: Balance billing amounts above the allowed charge are generally not counted toward the limit.

   Sources: HealthCare.gov Glossary (OOP)

8. Question 8 · Accident and health insurance: cost sharing: coordination of benefits

   An employee is covered by her employer's group health plan and also as a dependent under her husband's employer plan. She incurs a covered claim. Under standard coordination of benefits rules, which plan generally pays first?

   1. A. Her husband's plan, because the spouse's plan always pays first
   2. B. The plan that has been in force the longest, regardless of who is the employee
   3. C. Neither; she must choose one plan and cancel the other
   4. D. Her employer's plan, because it covers her as an employee rather than a dependent
   Show the answer and rationale

   Correct answer: D. Her employer's plan, because it covers her as an employee rather than a dependent

   Coordination of benefits prevents the total payments from exceeding the covered expense when a person has more than one plan. The plan that covers the person as an employee is generally primary, and the plan covering her as a dependent is secondary.

   • A: The dependent coverage is ordinarily secondary, not primary.
   • B: Length of time in force is not the usual first test; employee versus dependent status is.
   • C: People may keep both plans; COB just coordinates payment between them.

   Sources: NAIC Coordination of Benefits Model Regulation (Model #120), order of benefit determination

9. Question 9 · Accident and health insurance: ACA basics

   Under the ACA, a person with diabetes enrolls in a new individual major medical policy. Which statement is correct about the insurer's treatment of the diabetes?

   1. A. The insurer may exclude diabetes-related claims for the first 12 months
   2. B. The insurer may charge a higher premium based on the diabetes
   3. C. The insurer may not exclude coverage for the diabetes because of a preexisting condition exclusion
   4. D. The insurer may decline the application if the diabetes is poorly controlled
   Show the answer and rationale

   Correct answer: C. The insurer may not exclude coverage for the diabetes because of a preexisting condition exclusion

   Federal law prohibits group health plans and issuers of group or individual coverage from imposing preexisting condition exclusions, which limit benefits for conditions present before enrollment. Coverage must therefore apply to the condition from the effective date.

   • A: Waiting-period exclusions for preexisting conditions are prohibited.
   • B: Health status is not an allowed rating factor in the ACA-compliant individual market.
   • D: Guaranteed issue means the insurer cannot deny an eligible applicant based on health condition.

   Sources: 42 U.S.C. 300gg-3 (Cornell LII); HealthCare.gov Glossary (PEC)

10. Question 10 · Accident and health insurance: ACA basics

    Which of the following is one of the ACA's ten essential health benefit categories that non-grandfathered individual and small group plans must cover?

    1. A. Maternity and newborn care
    2. B. Cosmetic surgery
    3. C. Long-term custodial care
    4. D. Routine adult dental care
    Show the answer and rationale

    Correct answer: A. Maternity and newborn care

    The essential health benefits include ambulatory services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services, laboratory services, preventive and wellness services, and pediatric services including oral and vision care.

    • B: Cosmetic surgery is not an essential health benefit category.
    • C: Long-term custodial care is not one of the ten categories.
    • D: Pediatric dental is included, but routine adult dental is not.

    Sources: HealthCare.gov: What Marketplace plans cover (10 EHB, adult dental not an EHB); 42 U.S.C. 18022(b)(1) (Cornell LII)

11. Question 11 · Accident and health insurance: ACA basics

    A healthy applicant and an applicant with a chronic illness each apply for the same ACA-compliant individual major medical plan during open enrollment. Which feature of the ACA applies to the insurer's decision?

    1. A. Guaranteed issue, so the insurer must accept both applicants
    2. B. Underwriting, so the insurer may decline the applicant with the chronic illness
    3. C. Conditional renewal, so the insurer may accept both for one year only
    4. D. Waiting periods, so the insurer may delay coverage for the chronic illness
    Show the answer and rationale

    Correct answer: A. Guaranteed issue, so the insurer must accept both applicants

    Guaranteed issue requires an insurer to offer coverage to applicants who apply during the applicable enrollment periods, regardless of health status, and not to deny or charge more because of preexisting conditions.

    • B: Health-status underwriting to decline applicants is not allowed in ACA-compliant plans.
    • C: Conditional renewal is a renewability provision, not a feature governing acceptance of applicants.
    • D: Preexisting-condition waiting periods are prohibited.

    Sources: HealthCare.gov Glossary (GI)

12. Question 12 · Accident and health insurance: ACA basics: dependent coverage

    A parent has family coverage under an employer group plan that offers dependent coverage. The parent's daughter is 24, married, lives in another state and is not claimed as a tax dependent. Under the ACA dependent coverage provision, the plan generally must:

    1. A. Allow her to remain covered until she reaches age 26
    2. B. Terminate her coverage because she is married
    3. C. Terminate her coverage because she does not live with the parent
    4. D. Terminate her coverage because she is not a tax dependent
    Show the answer and rationale

    Correct answer: A. Allow her to remain covered until she reaches age 26

    Plans that offer dependent coverage must make it available to adult children until age 26. Marital status, residency, student status and tax dependency generally cannot be used to cut off coverage before then.

    • B: Marriage does not disqualify an adult child under 26.
    • C: Residency with the parent is not required.
    • D: Tax-dependent status is not required for coverage to age 26.

    Sources: HealthCare.gov: Coverage for children under 26

13. Question 13 · Accident and health insurance: ACA basics: medical loss ratio

    An insurer sold individual major medical coverage and collected $10,000,000 in premiums for the year. It spent $7,500,000 on covered claims and quality improvement. Assuming the ACA minimum loss ratio of 80% for this market applies and ignoring adjustments, what is the insurer's approximate rebate obligation?

    1. A. $500,000
    2. B. $2,000,000
    3. C. $2,500,000
    4. D. No rebate, because the ratio is above 70%
    Show the answer and rationale

    Correct answer: A. $500,000

    The medical loss ratio is the share of premium spent on claims and quality improvement. Here the ratio is $7.5 million / $10 million = 75%, below the 80% minimum. The shortfall of 5% of premium is $500,000 ($8,000,000 required minus $7,500,000 spent), which is rebated.

    • B: $2,000,000 would be 20% of premium, the allowed overhead, not the shortfall.
    • C: $2,500,000 is the entire non-claim spending, not the shortfall below the minimum.
    • D: No 70% threshold applies here; the minimum is 80% for the individual market.

    Sources: HealthCare.gov: Rate review / 80/20 rule

14. Question 14 · Accident and health insurance: group health: COBRA

    A worker covered by a group health plan of an employer with 50 employees is terminated for reasons other than gross misconduct. Which statement about COBRA continuation is generally correct?

    1. A. The employer must keep paying the full premium for the entire continuation period
    2. B. COBRA applies only to employers with fewer than 20 employees
    3. C. The worker may elect continuation but may be required to pay up to 102% of the plan's cost
    4. D. COBRA continuation coverage is available only to the employee and never to dependents
    Show the answer and rationale

    Correct answer: C. The worker may elect continuation but may be required to pay up to 102% of the plan's cost

    COBRA lets covered employees and their families keep group coverage after qualifying events such as job loss or reduced hours. It generally applies to plans of employers with 20 or more employees, and the qualified individual may be charged up to 102% of the plan's cost.

    • A: The individual typically pays the premium; the employer is not required to subsidize it.
    • B: COBRA generally applies to employers with 20 or more employees, not fewer than 20.
    • D: Covered spouses and dependent children can also be qualified beneficiaries.

    Sources: U.S. Department of Labor: COBRA continuation coverage

15. Question 15 · Accident and health insurance: individual policy provisions: renewability

    Under the NAIC-style renewability classifications for individual accident and sickness policies, an insured's policy gives the insured the right to continue it by timely payment of premiums, and the insurer may not unilaterally change any policy provision, including the premium rate, for the period stated in the policy. This classification is:

    1. A. Optionally renewable
    2. B. Guaranteed renewable
    3. C. Noncancellable
    4. D. Conditionally renewable
    Show the answer and rationale

    Correct answer: C. Noncancellable

    Under the NAIC-style definitions adopted in state rules, a noncancellable policy gives the insured the right to continue it in force by timely premium payment for a stated period (at least to age 50, or five years if issued after age 44), and the insurer may not unilaterally change any provision, including premium. A guaranteed renewable policy has the same continuation right but the insurer may change premium rates by class. An optionally renewable policy gives the insurer an unhampered right of nonrenewal, and a conditionally renewable policy limits nonrenewal to stated reasons other than deterioration of health.

    • A: Optionally renewable policies give the insurer an unhampered right of nonrenewal.
    • B: Guaranteed renewable policies permit premium rate changes by class.
    • D: Conditionally renewable policies limit nonrenewal to stated reasons, and the insurer may change premiums.

    Sources: Mich. Admin. Code R 500.802 (definitions: noncancellable, guaranteed renewable, optionally renewable)

16. Question 16 · Medicare: Part A

    Which of the following is covered by Medicare Part A (Hospital Insurance)?

    1. A. Routine physician office visits
    2. B. Inpatient care in a hospital
    3. C. Outpatient prescription drugs
    4. D. Routine dental cleanings
    Show the answer and rationale

    Correct answer: B. Inpatient care in a hospital

    Part A is hospital insurance. It helps pay for inpatient care in hospitals, critical access hospitals and skilled nursing facilities, and also hospice and some home health care. Medically necessary outpatient services fall under Part B, and general outpatient prescription drugs are covered through Part D plans.

    • A: Routine physician office visits are outpatient medical services under Part B, not Part A.
    • C: Part B covers only limited outpatient drugs; general outpatient prescription drug coverage comes from Part D plans, not Part A.
    • D: Original Medicare generally does not cover routine dental care such as cleanings.

    Sources: Medicare.gov: What Part A covers; Medicare.gov: What Part B covers; Medicare.gov: Dental service coverage

17. Question 17 · Medicare: Part D and Medigap

    Carlos has Original Medicare and bought a Medigap policy when he first enrolled. The Medigap policy was issued after 2005 and has no drug benefit. How can Carlos obtain outpatient prescription drug coverage?

    1. A. Add a Part A rider to the Medigap policy
    2. B. Switch the Medigap policy to a Medicare Advantage plan
    3. C. Apply for a Part B drug endorsement from Social Security
    4. D. Enroll in a stand-alone Medicare Part D drug plan
    Show the answer and rationale

    Correct answer: D. Enroll in a stand-alone Medicare Part D drug plan

    Medigap policies sold after 2005 do not include prescription drug coverage. A person with Original Medicare and Medigap who wants drug coverage joins a separate Part D plan offered by a private insurer.

    • A: Part A is hospital insurance and is not a drug benefit that Medigap riders supply.
    • B: Medigap and Medicare Advantage are separate coverages; a person generally cannot use Medigap to pay Medicare Advantage costs, and switching plans would not add a stand-alone drug benefit this way.
    • C: Part B covers only limited outpatient drugs, and Social Security does not add a general outpatient drug endorsement to Original Medicare.

    Sources: Medicare.gov: Learn How Medigap Works; Medicare.gov: What Part B covers

18. Question 18 · Medicare: Medicare Advantage vs Original Medicare

    Which statement best describes a Medicare Advantage (Part C) plan?

    1. A. A private-company plan that is an alternative to Original Medicare
    2. B. A federal program that pays only for long-term custodial care
    3. C. A supplement that pays the cost-sharing amounts left by Original Medicare
    4. D. A needs-based program run only by state governments
    Show the answer and rationale

    Correct answer: A. A private-company plan that is an alternative to Original Medicare

    Medicare Advantage (Part C) plans are offered by private companies approved by Medicare and are an alternative to Original Medicare. Enrollees receive their Part A and Part B benefits through the plan, which often uses provider networks and usually includes drug coverage.

    • B: Medicare does not generally pay for custodial long-term care, and Part C is not limited to it.
    • C: That describes a Medigap policy, which supplements Original Medicare rather than replacing it.
    • D: That describes Medicaid; Medicare Advantage is a Medicare option, not a needs-based state program.

    Sources: Medicare.gov: Medicare Advantage (Part C); Medicare.gov: Learn How Medigap Works

19. Question 19 · Medicare: Medigap concepts

    Dana is enrolled in a Medicare Advantage plan and asks an agent to sell her a Medigap policy to cover the plan's copayments and deductibles. Which response is correct?

    1. A. Medigap can be sold to her if she prepays a full year of premium
    2. B. Medigap will pay the plan's copayments but not its deductibles
    3. C. Medigap is meant for Original Medicare and cannot pay Medicare Advantage cost sharing
    4. D. Medigap will pay the plan's cost sharing if her spouse is also covered under the same policy
    Show the answer and rationale

    Correct answer: C. Medigap is meant for Original Medicare and cannot pay Medicare Advantage cost sharing

    A Medigap policy supplements Original Medicare (Parts A and B). Medicare.gov states that you generally cannot use Medigap to pay Medicare Advantage costs, so it would not pay her plan's copayments, deductibles or premiums. A Medigap policy also covers only one person.

    • A: Prepaying premiums does not change the rule that Medigap is not used to pay Medicare Advantage costs.
    • B: Medigap does not pay Medicare Advantage cost sharing, whether copayments or deductibles.
    • D: A Medigap policy covers only one person, and spousal coverage is irrelevant to Medicare Advantage cost sharing.

    Sources: Medicare.gov: Learn How Medigap Works

20. Question 20 · Medicaid: basics

    Which statement correctly describes Medicaid?

    1. A. It is a federal program funded entirely by payroll taxes and limited to persons age 65 or older
    2. B. It is an employer-sponsored plan available only to workers injured on the job
    3. C. It is a private insurance product that supplements Medicare cost sharing
    4. D. A joint federal-state program offering coverage based on need and eligibility category
    Show the answer and rationale

    Correct answer: D. A joint federal-state program offering coverage based on need and eligibility category

    Medicaid is a joint federal and state program. It follows federal guidelines, but income limits, coverage and costs vary by state, and eligibility is mainly income-based within groups such as children, families, pregnant women, older adults and people with disabilities. It is distinct from Medicare, a federal program based largely on age or disability.

    • A: Medicaid is not limited to people age 65 or older, and it is financed jointly by the federal government and the states rather than solely by payroll taxes.
    • B: Work-related injuries are the province of workers compensation, not Medicaid.
    • C: Medigap supplements Medicare; Medicaid is a government program, not a private product.

    Sources: HealthCare.gov: Medicaid and CHIP coverage

21. Question 21 · Disability income: definition of disability

    A surgeon with a disability income policy loses fine motor control and can no longer operate, but she could work as a medical school lecturer. Under which definition of disability would she most clearly qualify for total disability benefits?

    1. A. Own-occupation, which looks at inability to perform the duties of her regular occupation
    2. B. Any-occupation, which requires inability to work in any job suited to her training
    3. C. Residual, which pays only after a return to work with reduced earnings
    4. D. Presumptive, which pays automatically only for named losses such as sight, hearing or speech
    Show the answer and rationale

    Correct answer: A. Own-occupation, which looks at inability to perform the duties of her regular occupation

    An own-occupation definition pays when the insured cannot perform the regular and customary duties of her own occupation because of covered illness or injury, even if she could work in another field. An any-occupation definition requires inability to perform any occupation for which she is qualified by education, training and experience, so the ability to lecture could defeat the claim. Own-occupation is the more lenient definition.

    • B: Any-occupation wording denies total disability benefits if she can do another job suited to her training, such as lecturing.
    • C: Residual disability pays a proportional benefit for lost income after a return to work; it is not the definition of total disability asked about.
    • D: Presumptive disability covers conditions named in the policy, such as loss of sight, hearing or speech; loss of fine motor control as a surgeon is not such a named loss.

    Sources: North Carolina Department of Insurance: A Consumer's Guide to Disability Income Insurance

22. Question 22 · Disability income: elimination period

    In a disability income policy, the elimination period is best described as

    1. A. the maximum length of time benefits can be paid for one disability
    2. B. the period after a covered disability begins during which no benefits are payable
    3. C. the time allowed for the insured to submit proof of loss
    4. D. the period before a new policy can be contested by the insurer
    Show the answer and rationale

    Correct answer: B. the period after a covered disability begins during which no benefits are payable

    The elimination period is a specified period after disability begins during which benefits are not payable. It works like a deductible measured in time, and policies with longer elimination periods generally cost less. The benefit period is the length of time benefits will be paid.

    • A: That is the benefit period, not the elimination period.
    • C: Proof of loss timing is a claims provision unrelated to the waiting period.
    • D: That describes the incontestability concept, not the elimination period.

    Sources: North Carolina Department of Insurance: A Consumer's Guide to Disability Income Insurance

23. Question 23 · Disability income: residual disability

    Before becoming disabled, Mark earned $6,000 per month. After recovering partially, he returns to work earning $3,000 per month. His policy pays a residual benefit equal to the proportion of income lost multiplied by the full monthly benefit, and the full monthly benefit is $3,000. What residual benefit is payable monthly, ignoring any elimination period?

    1. A. $1,000
    2. B. $1,500
    3. C. $2,000
    4. D. $3,000
    Show the answer and rationale

    Correct answer: B. $1,500

    Income lost is $6,000 minus $3,000 = $3,000, or 50% of prior income. Under the policy formula in the stem, 50% of the $3,000 full monthly benefit is $1,500. A residual disability provision pays a benefit when the insured has lost income after returning to work; the amount is set by a formula in the policy.

    • A: $1,000 results from the wrong ratio; income lost is 50%, not one-third.
    • C: $2,000 results from a two-thirds ratio that does not match the 50% income loss.
    • D: $3,000 is the total disability benefit, but Mark has lost only half his income.

    Sources: North Carolina Department of Insurance: A Consumer's Guide to Disability Income Insurance

24. Question 24 · Disability income: Social Security offset

    A disability income policy includes a Social Security offset provision that reduces the policy benefit dollar for dollar by any Social Security disability benefit the insured receives. The policy's monthly benefit is $4,000 and the insured is approved for a Social Security disability benefit of $1,500 per month. What is the monthly amount the policy pays?

    1. A. $1,500
    2. B. $2,500
    3. C. $4,000
    4. D. $5,500
    Show the answer and rationale

    Correct answer: B. $2,500

    With a dollar-for-dollar offset, the insurer subtracts the Social Security disability benefit from the policy benefit: $4,000 minus $1,500 equals $2,500. The insured's total monthly income from both sources is then $4,000.

    • A: $1,500 is the Social Security amount, not the reduced policy benefit.
    • C: $4,000 ignores the offset, which the policy states reduces payment.
    • D: $5,500 adds the two benefits, which is the opposite of an offset.

    Sources: North Carolina Department of Insurance: A Consumer's Guide to Disability Income Insurance

25. Question 25 · Long-term care: benefit triggers

    Under federal tax law, which of the following would qualify a person as chronically ill for a tax-qualified long-term care policy benefit trigger when certified by a licensed health care practitioner?

    1. A. Inability to perform any one activity of daily living for 30 days
    2. B. A hospital stay of at least three days
    3. C. Inability to drive or manage investments, with no help needed for basic self-care
    4. D. Needing substantial supervision because of severe cognitive impairment
    Show the answer and rationale

    Correct answer: D. Needing substantial supervision because of severe cognitive impairment

    Under 26 U.S.C. 7702B(c)(2), a chronically ill individual is certified by a licensed health care practitioner as unable to perform, without substantial assistance, at least two of six activities of daily living for at least 90 days, as having a similar level of disability under regulations, or as needing substantial supervision to protect health and safety because of severe cognitive impairment. Hospital stays and instrumental activities such as driving are not the triggers.

    • A: One ADL for 30 days falls short of the two-ADL, 90-day standard.
    • B: A prior hospital stay is not a qualified trigger for a tax-qualified policy.
    • C: Driving and managing investments are instrumental activities, not ADLs, and no cognitive impairment is stated.

    Sources: 26 U.S.C. 7702B (LII); NAIC: A Shopper's Guide to Long-Term Care Insurance

26. Question 26 · Long-term care: inflation protection

    A 48-year-old buys a long-term care policy with an inflation protection option. What is the main purpose of this option?

    1. A. To shorten the elimination period as the insured ages
    2. B. To waive premiums once the insured begins receiving benefits
    3. C. To help benefits keep pace with rising care costs
    4. D. To allow benefits to be paid directly to the insured regardless of services
    Show the answer and rationale

    Correct answer: C. To help benefits keep pace with rising care costs

    Care costs typically rise over time, and the insured may not claim benefits for decades. Inflation protection increases the benefit amounts, for example automatically by a fixed percentage each year or through periodic offers, so that benefits keep up with increasing long-term care costs.

    • A: Inflation protection affects benefit amounts, not the length of the elimination period.
    • B: Waiver of premium is a separate feature and not the purpose of inflation protection.
    • D: Whether benefits are reimbursed or paid in cash is a policy-design feature unrelated to inflation protection.

    Sources: NAIC: A Shopper's Guide to Long-Term Care Insurance; 26 U.S.C. 7702B (LII)

27. Question 27 · Workers compensation: concept

    Which statement best describes the general operation of workers compensation insurance?

    1. A. Employee-paid premiums, with the right to sue the employer for pain and suffering
    2. B. Benefits payable only when the employer's negligence caused the injury
    3. C. No-fault benefits for work-related injury or illness, with limits on suing the employer
    4. D. Coverage for off-the-job accidents once the employee has worked a full year
    Show the answer and rationale

    Correct answer: C. No-fault benefits for work-related injury or illness, with limits on suing the employer

    Workers compensation is a no-fault system in which employers provide the insurance. Covered employees receive medical, disability and death benefits for work-related injury or illness regardless of fault, and in exchange the benefits are generally the exclusive remedy against the employer. Details vary by state.

    • A: Employers, not employees, pay the premiums, and the exclusive remedy rule generally bars suits.
    • B: Workers compensation is no-fault, so employer negligence need not be proven.
    • D: Coverage is for work-related conditions, not off-the-job accidents.

    Sources: U.S. DOL OWCP: Longshore Act (no-fault compensation, exclusive remedy, benefit types); California DIR Division of Workers' Compensation: What is workers' compensation? (fact sheet)

28. Question 28 · Business uses: key person disability

    A company buys a disability income policy on its top salesperson to offset lost revenue and recruiting costs if she becomes disabled. In a key person disability arrangement, who is typically the policy owner and beneficiary?

    1. A. The salesperson
    2. B. The business
    3. C. The salesperson's spouse
    4. D. The company's largest customer
    Show the answer and rationale

    Correct answer: B. The business

    Key person disability coverage protects the business from the financial loss of a key employee's disability. The business applies for, owns and pays for the policy and receives the benefits, which help with lost revenue and replacement costs.

    • A: The employee is the insured, but receiving the benefit would not reimburse the business.
    • C: A spouse has no insurable interest in the business loss being covered.
    • D: A customer has no ownership of the business's key person coverage.

    Sources: NAIC: Small Business Insurance (disability insurance for key employees)

29. Question 29 · Accident-only and AD&D

    An insured covered by an accidental death and dismemberment (AD&D) policy dies of a heart attack caused by illness. What is the likely result?

    1. A. The full accidental death benefit is paid because the insured died while covered
    2. B. No benefit is payable because illness, not accidental injury, caused death
    3. C. The claim is paid at the dismemberment benefit level because death was sudden
    4. D. Half of the accidental death benefit is paid because illness contributed to death
    Show the answer and rationale

    Correct answer: B. No benefit is payable because illness, not accidental injury, caused death

    AD&D insurance pays a stated benefit for death or dismemberment caused by accident. An accident is an unexpected event without deliberate intent, so death from disease or illness, such as an illness-related heart attack, is not covered. Policies commonly pay for loss resulting from accidental bodily injury; older wording that required accidental means likewise focused on the cause of the loss. Neither standard is met by death from illness.

    • A: AD&D requires an accidental cause; death while covered is not enough.
    • C: Dismemberment benefits apply to accidental loss of limbs or sight, not to death from illness.
    • D: AD&D does not pay partial benefits for a death that was not accidental.

    Sources: NAIC Glossary of Insurance Terms

30. Question 30 · Claims: physical examination and autopsy provision

    A health insurer is evaluating a claim and exercises the policy's physical examination and autopsy provision after the insured's death. Where permitted by law, who generally pays the cost of the autopsy?

    1. A. The insured's estate
    2. B. The beneficiary
    3. C. The attending physician
    4. D. The insurer
    Show the answer and rationale

    Correct answer: D. The insurer

    The physical examination and autopsy provision gives the insurer the right, at its own expense, to examine the insured while a claim is pending and to conduct an autopsy where not prohibited by law. This helps the insurer verify the claim.

    • A: The estate does not bear the cost when the insurer invokes the right.
    • B: The beneficiary is not required to pay for the insurer's investigation.
    • C: Physicians are not responsible for costs of the insurer's claim examination.

    Sources: Texas Insurance Code 1201.216 (Physical Examinations and Autopsy)

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