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

Detailed Answer in Step-by-Step Solution:

Individual disability income (C) benefits are taxable if the insured paid premiums with pre-tax dollars (e.g., employer-paid), but tax-free if paid with after-tax dollars. The question implies taxable benefits, typical when premiums are deductible.

Business overhead expense (A), disability buy-sell (B), and key person disability (D) benefits are generally tax-free to the business or recipient, as premiums are not deductible.

The Virginia study guide, per IRS rules, states that individual disability income benefits are taxable if premiums were paid pre-tax (e.g., by an employer), unlike business-related disability policies where benefits serve specific tax-exempt purposes. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Taxation of Insurance Benefits."

When the owner of a life insurance policy reserves the right to change the beneficiary, it is referred to as a revocable designation. A revocable beneficiary designation allows the policyholder to change the beneficiary at any time without the consent of the current beneficiary. This flexibility is in contrast to an irrevocable designation, where the beneficiary cannot be changed without their consent.

Consideration is a required element of a valid contract and refers to the value exchanged between parties. In an insurance contract, the applicant’s consideration is the premium and the statements made in the application, while the insurer’s consideration is the promise to pay benefits as outlined in the policy. Without consideration from both parties, a contract cannot be legally binding. Contribution and subrogation are insurance principles related to claims, not contract formation. Valuation is a general term and not a legal contract requirement. Therefore, consideration correctly describes the mutual exchange of value.

Detailed Answer in Step-by-Step Solution:

A viatical settlement involves a terminally ill policyowner selling their life insurance policy for a lump sum. The policyowner in this transaction is called the viator (C).

The viatical settlement provider (A) is the entity purchasing the policy.

The viatical settlement broker (B) facilitates the transaction.

"Viatee" (D) is not a recognized term in this context.

The Virginia study guide defines the viator as the insured policyowner who sells their policy in a viatical settlement, typically due to a terminal illness. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Viatical Settlements."

Independent agents are not employees of any single insurer. They work independently, representing multiple insurance companies and are responsible for their own expenses. They earn compensation based on commissions from sales, and they typically own the renewal business, meaning they retain the commissions from renewing policies.

A consumer report contains information about an individual’s credit history, financial reputation, and personal characteristics. Virginia insurance exam materials clearly distinguish consumer reports from medical and underwriting reports. Insurers may use consumer reports during underwriting, but only with proper authorization and disclosure under privacy and fair credit reporting standards.

An agent’s report focuses on observations made by the agent during the application process. An attending physician’s report (APR) contains medical information provided by a healthcare provider. An index bureau report (such as MIB) contains coded medical or application activity data shared among insurers, not credit information.

Because credit standing specifically refers to financial responsibility and credit history, the correct answer is a consumer report. Virginia regulations emphasize strict handling, confidentiality, and disclosure requirements when insurers obtain and use consumer reports.

A decreasing term policy provides a declining death benefit over the policy term, while premiums remain level. These policies are often used for mortgage protection, as the insurance amount reduces in line with the declining loan balance.

Exact Extract (Virginia Life Insurance Study Guide): “Decreasing term insurance—provides a level premium and a decreasing face amount throughout the term of coverage, often used for debt protection.”

References (Virginia Documents / Study Guide):

— Virginia Life & Annuities Examination Outline, Term Insurance

The free look period allows a policyowner to review a newly issued life insurance policy and cancel it within a specified number of days after delivery for a full refund of premiums paid. Virginia requires this consumer protection provision to ensure buyers have time to examine policy terms and confirm suitability.

A grace period applies to late premium payments, not policy cancellation. Discovery and probationary periods are not standard life insurance provisions. The free look period strengthens consumer confidence and transparency in the insurance marketplace, making option D correct.

The waiver of premium rider allows the insured to stop paying premiums while disabled. After a specified waiting period (typically 90 days), premiums are waived for as long as the disability continues.

Exact Extract (Virginia Disability Study Guide): “Waiver of premium—after a period of total disability, future premiums are waived while benefits remain payable.”

References (Virginia Documents / Study Guide):

— Virginia Health Insurance Examination Outline, Disability Riders

In an HMO, members designate a primary care physician (PCP) who coordinates care and issues referrals to specialists. This gatekeeper function is a hallmark of HMO plans.

Exact Extract (Virginia HMO Study Guide): “HMO members select a primary care physician responsible for providing and coordinating all medical care.”

References (Virginia Documents / Study Guide):

— Virginia Health Insurance Examination Outline, HMO Characteristics