Free Practice Questions for Insurance Licensing Virginia-Life-Annuities-and-Health-Insurance Exam

Universal life insurance is a form of permanent life insurance that provides flexibility in both premium payments and death benefit amounts, subject to policy limits and insurer approval. Policyowners may increase or decrease the death benefit, although increases usually require evidence of insurability. Premiums are flexible, allowing the policyowner to vary the timing and amount of payments as long as sufficient cash value exists to cover policy charges. Universal life policies also credit interest to the cash value at a rate that must meet or exceed a stated guaranteed minimum. However, unlike whole life insurance, universal life does not guarantee a minimum cash value for the life of the policy. Cash value growth depends on credited interest and the cost of insurance charges deducted from the policy. If insufficient premiums are paid, the policy can lapse. Therefore, the statement that each policy has a guaranteed cash value for life is incorrect.

The direct response marketing system involves insurers selling insurance directly to consumers through mass media advertising, mail, telephone, or internet communication, without using insurance agents. This system relies on advertisements that invite prospects to apply directly to the insurer.

Branch office and captive agent systems involve licensed agents who represent the insurer. Contingent systems are related to compensation structures, not distribution methods.

Virginia licensing standards identify direct response marketing as a legitimate method of insurance distribution, with the insurer assuming responsibility for underwriting, policy issuance, and customer service. Because no agent is involved, commissions are typically not paid, which can lower policy costs.

Under Virginia licensing standards and federal tax principles taught for the life insurance exam, life insurance death proceeds are generally exempt from federal income tax when paid to a beneficiary due to the insured’s death. This long-standing rule is a fundamental advantage of life insurance and is frequently tested.

The transfer-for-value rule applies only in limited situations when a life insurance policy is sold or transferred for consideration, which is not the general rule for death benefits. The cost recovery rule and interest-first rule apply to annuities, not life insurance death proceeds. Therefore, options B, C, and D are incorrect.

This tax-free treatment allows beneficiaries to receive the full face amount without reduction for income taxes, making life insurance an effective financial protection and estate planning tool. While estate taxes may apply in certain high-value estates, income tax treatment remains favorable in most cases.

The employer who receives and holds the group life insurance policy is referred to as the master policyholder. The master policyholder is responsible for overseeing the insurance plan for the employees, though the employees themselves are the policyholders for their individual benefits. The insurer provides the master policy to the employer, and employees receive certificates of insurance.

In Virginia, the responsibilities of a licensed life insurance agent (also called a producer) are clearly distinguished from those of the insurance company.

Delivery of policies: The agent must deliver newly issued policies to the applicant. Virginia regulations require that, upon policy delivery, the agent must also provide required disclosures and obtain any necessary signed statements (such as delivery receipts).

Replacement notification: If an agent is aware that a new policy will replace an existing one, the agent must notify the insurance company and comply with Virginia’s replacement regulations, which include providing written notices and ensuring that applicants are fully informed.

Collection of premiums: An agent is authorized to collect the initial premium from the applicant at the time of application or upon delivery of the policy, provided the insurer allows such practice.

However, approving policies for issue is not within the authority of an agent. Only the insurer has the legal authority to underwrite and approve policies for issue. Agents are producers and representatives of the insurer, but they do not possess underwriting authority to approve or reject applications.

This distinction is reinforced by the Virginia Bureau of Insurance regulations, which specify that the insurer is responsible for policy issuance and underwriting decisions, while agents are responsible for solicitation, policy delivery, disclosure, and premium collection.

References (Virginia official documents and study materials):

Code of Virginia § 38.2-1825 (Agent’s authority and responsibilities)

Code of Virginia § 38.2-1834 (Duties in policy replacement — notice requirements)

Virginia Administrative Code 14VAC5-200-110 (Replacement regulations and disclosure duties)

Virginia Life, Annuities & Health Insurance Study Guide — Producer responsibilities section

Under the coordination of benefits provision, when an individual is covered by more than one medical plan, the primary plan (Plan A) pays up to its limit first, and then the secondary plan (Plan B) pays any remaining covered expenses. In this case, since Plan A is primary, it will pay up to its maximum benefit of $4,000. After that, Plan B will pay up to its maximum benefit of $3,000, covering the remaining $2,000 in expenses.

Agents act as representatives of insurers to solicit, receive, and forward applications. They cannot approve claims or unilaterally reinstate or replace contracts. Exact extract: “An agent is authorized to solicit, receive, and forward applications to the insurer but has no power to approve claims or reinstate policies.”

Detailed Answer in Step-by-Step Solution:

The proof of loss is a formal statement of a claim, and standard health insurance policies require it within 90 days of the loss (C), unless the policy specifies otherwise or state law extends it.

Options A (30 days) and B (60 days) are too short for most policies, while D (120 days) exceeds the typical requirement.

The Virginia study guide aligns with the NAIC model laws, stating that proof of loss must typically be filed within 90 days of the loss, though insurers may accept later submissions if not prejudicial. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Health Insurance Claims Provisions."

Detailed Answer in Step-by-Step Solution:

The Medicare Supplement open enrollment period (6 months starting the first month a person is 65 and enrolled in Medicare Part B) guarantees issuance of a policy without regard to health status (D).

Premiums (A), benefits (B), and exclusions (C) are standardized and not altered during this period due to health.

The Virginia study guide states that during the Medicare Supplement open enrollment, insurers must issue policies without medical underwriting, ensuring access regardless of health. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Medicare Supplement Insurance."

The notice of claim is the first step in initiating a health insurance claim. The insured must provide this notice to the insurer within the time limit specified in the policy, or as soon thereafter as reasonably possible. This notice typically includes basic information about the claim, and additional documentation, such as medical bills or a physician's diagnosis, may be required later in the process.