Illinois Life & Health Insurance License, Practice Exams

Under Section 30 (Prohibitions), no health care plan or its subcontractor may, by contract or policy:

1. Enforce reasonable utilization review protocols
2. Require providers to obtain preauthorization for elective procedures unless an exception clearly applies for the coverage that is in force according to the insurer's rules
3. Prohibit or discourage providers from discussing health care services, utilization review and quality assurance policies, and plan terms with enrollees and the public ✓
4. Require enrollees to select a participating primary care physician

Why: Section 30(a) prohibits a plan or its subcontractors from prohibiting or discouraging providers, by contract or policy, from discussing health care services, providers, UR and quality assurance policies, and plan terms with enrollees, prospective enrollees, providers, or the public.

A life insurance policy that fails the federal '7-pay test' is classified as a Modified Endowment Contract (MEC), meaning:

1. Lifetime distributions are taxed on a LIFO basis with a possible penalty ✓
2. All future death benefits paid to beneficiaries become fully taxable
3. The policy immediately loses its cash value and reverts to term coverage
4. Premiums paid into the policy become deductible on the owner's tax return

Why: A MEC keeps a tax-free death benefit, but living distributions are taxed gains-first (LIFO) with a 10% penalty before 59½.

A Buyer's Guide and a Policy Summary are provided to a life insurance applicant to:

1. Help the consumer understand and compare the coverage before buying ✓
2. Serve as the legally binding insurance contract itself
3. Replace the need for the producer to complete an application
4. Guarantee the lowest premium available in the marketplace

Why: The Buyer's Guide explains types of policies generically and the Policy Summary gives specific cost/benefit figures, aiding informed comparison.

The Motor Vehicle (Class 2(b) or 3(e)) pre-licensing course requires how many total hours, and how many must be completed in a classroom or webinar setting?

1. 12.5 total hours, with 5 hours in a classroom or webinar setting ✓
2. 20 total hours, with 7.5 hours in a classroom or webinar setting
3. 12.5 total hours, with 7.5 hours in a classroom or webinar setting
4. 10 total hours, with 5 hours in a classroom or webinar setting

Why: Section 500-30(b) sets Motor Vehicle at 12.5 hours, requiring 5 hours in a classroom or webinar setting (other lines require 7.5).

A client exchanges one deferred annuity directly for another deferred annuity with better features. Under Section 1035, this is:

1. A tax-free exchange ✓
2. A fully taxable distribution
3. Taxed only on the earnings
4. Subject to a 10% penalty

Why: Annuity-to-annuity exchanges qualify for tax-free treatment under Section 1035.

Long-term care policy benefits are commonly triggered when the insured is unable to perform a specified number of:

1. Activities of daily living (ADLs) ✓
2. Hours of work per week
3. Prescription refills
4. Annual doctor visits

Why: Benefits typically trigger on inability to perform 2 of 6 ADLs (or severe cognitive impairment).

Social Security disability benefits use a strict definition: the inability to engage in:

1. Any substantial gainful activity due to a medically determinable impairment ✓
2. The specific occupation the insured personally held immediately before the disability began
3. Any work the insured personally finds enjoyable
4. Physical labor, though desk work is still expected

Why: SSDI requires inability to perform any substantial gainful activity (not just one's own occupation), expected to last at least 12 months or result in death.

Under the Legal Actions provision, what is the outer time limit for bringing a civil action on the policy?

1. No later than 1 year after proof of loss is required unless an exception clearly applies
2. No later than 2 years after the loss occurs
3. No later than 3 years after the time written proof of loss is required to be furnished ✓
4. No later than 5 years after the claim is denied

Why: Sec. 357.12 prohibits any action brought after 3 years from the time written proof of loss is required to be furnished.

Federal telemarketing (do-not-call) rules require that insurers and producers:

1. Not call numbers listed on the national Do-Not-Call Registry ✓
2. Call every prospect at least once per month
3. Record all sales calls and send them to the state
4. Only contact prospects by postal mail

Why: Telemarketers must scrub against the national Do-Not-Call Registry and honor opt-outs.

Agreements among insurers to restrain trade or force someone out of business are the unfair practices known as:

1. Boycott, coercion, and intimidation ✓
2. Twisting and churning of policies
3. Rebating and commission sharing
4. Defamation of a competitor

Why: Boycott, coercion, and intimidation are unfair trade practices involving combinations or threats that restrain or monopolize the business of insurance.

A policy has an irrevocable beneficiary. To change that beneficiary, the owner must:

1. Obtain the irrevocable beneficiary's consent ✓
2. Simply submit a change form to the insurer
3. Wait until the next policy anniversary
4. Cancel and reissue the entire policy

Why: An irrevocable beneficiary's rights are vested; the owner cannot change it without that beneficiary's written consent.

Withdrawals of earnings from a nonqualified deferred annuity are taxed:

1. On a first-in, first-out basis, returning principal first
2. On a last-in, first-out basis, so gains are taxed first ✓
3. At favorable long-term capital-gains rates in every case
4. Only after the entire account value has been withdrawn

Why: Nonqualified annuity withdrawals are taxed LIFO — earnings (gains) are considered withdrawn first and taxed as ordinary income.

Under Section 500-80, may renewal or deferred commissions be paid to a person who is no longer licensed?

1. No, deferred commissions may never be paid after a license ends
2. Yes, if the person was required to be licensed and was so licensed at the time of the original sale, solicitation, or negotiation ✓
3. Yes, but only if the person reinstates the license within one year
4. Only if the appointing insurer obtains the Director's written consent unless an exception clearly applies for the coverage that is in force

Why: Section 500-80(c) permits renewal or deferred commissions where the person was required to be licensed and was so licensed at the time of the sale, solicitation, or negotiation.

Under Section 531.20, after the merger of the HMO Guaranty Association into the Life and Health Insurance Guaranty Association, a certificate holder is NOT entitled to:

1. Enforcement of obligations that existed as of the date of the merger
2. A recovery from the Life and Health Association that is duplicative of a previous recovery from the HMO Guaranty Association ✓
3. Prosecution to judgment of an action pending against the former HMO Guaranty Association unless an exception clearly applies for the coverage that is in force
4. The preservation of creditor rights existing before the merger

Why: Section 531.20(6) states the intent is to preserve existing rights, not create duplicative or new ones; no person is entitled to a recovery that is duplicative of a previous recovery from the HMO Guaranty Association.

A joint and survivor annuity continues payments:

1. As long as either annuitant is still living ✓
2. Only until the first of the two annuitants dies
3. For a fixed ten-year period regardless of survival
4. To the couple's children after both annuitants die

Why: A joint and survivor annuity pays as long as either annuitant lives (often reducing to a percentage for the survivor).

Which term life policy has a face amount that declines over the term and is commonly used to cover a mortgage balance?

1. Level term
2. Decreasing term ✓
3. Increasing term
4. Renewable term

Why: Decreasing term's face amount drops over time (premium usually level), matching a declining debt such as a mortgage.

Two years after issue, an Illinois A&H insurer discovers a non-fraudulent misstatement an applicant made on the application. Under the Time Limit on Certain Defenses provision, what may the insurer do as to a later loss?

1. Rescind the policy retroactively to the original issue date in most situations
2. Neither void the policy nor deny the later claim based on that misstatement ✓
3. Deny the claim but keep the policy in force going forward
4. Reduce benefits proportionally to the misstated risk

Why: Sec. 357.3(1) bars using non-fraudulent application misstatements to void the policy or deny a claim for loss commencing after the 2-year period.

How many years after the conclusion of the related transactions may the Director destroy books and records directly related to consumer complaints or inquiries?

1. Five years ✓
2. Two years
3. Ten years
4. Three years

Why: Section 404(3) authorizes the Director to destroy records directly related to consumer complaints or inquiries five years after the conclusion of the transactions to which they relate.

A policy loan taken against a life policy's cash value:

1. Must be repaid in full within thirty days or it lapses
2. Reduces the death benefit by any unpaid loan and interest ✓
3. Is treated as taxable income in the year the loan is taken
4. Requires the owner to submit new evidence of insurability

Why: Unpaid loan balance and interest are subtracted from the death benefit; loans are not taxable while the policy stays in force.

A person who violates a cease and desist order, where the Director finds the violations occurred with such frequency as to constitute a general business practice, may be fined up to what amount?

1. $100,000 ✓
2. $20,000
3. $1,000
4. $500,000

Why: Section 1020(B)(2) authorizes a fine of not more than $100,000 if the Director finds violations occurred with such frequency as to constitute a general business practice.

After a license has been on inactive status for 4 years or more, what must the licensee do to restore it to active status under Section 500-120?

1. Pay a single $100 restoration fee with no other requirement in that particular circumstance
2. Meet all of the standards required of a new applicant before the license may be restored ✓
3. Complete only the ethics portion of continuing education
4. File a written request within 30 days of the 4-year mark

Why: Section 500-120(c) requires a licensee inactive for 4 years or more to meet all standards required of a new applicant.

An insurer pays an A&H claim 50 days after receiving due proof of loss. What interest does Section 357.9 entitle the insured to?

1. No interest, because payment was within the legal-action waiting period in that particular circumstance
2. Interest at 9% per annum running from the 30th day after receipt of proof to the date of late payment ✓
3. A flat penalty of 10% of the claim amount
4. Interest at 6% per annum from the date proof was received

Why: Sec. 357.9 entitles the insured to 9% per annum interest from the 30th day after receipt of due proof of loss to the date of late payment.

Section 149(4) prohibits any advertising or statement that tends to create the impression that an insurer or the payment of its claims is:

1. Subject to review by an independent rating bureau unless an exception clearly applies for the coverage that is in force
2. Approved, endorsed, or guaranteed by the State of Illinois or the United States Government or the Director ✓
3. Underwritten by a licensed reinsurer
4. Backed by a private guaranty fund

Why: Section 149(4)(a) prohibits any material tending to create the impression that the company, its financial condition, or payment of its claims is approved, endorsed, or guaranteed by the State of Illinois or the United States Government or the Director, or is secured by Government bonds or a deposit with the Director.

Survivorship (second-to-die) life insurance is most commonly used to:

1. Provide estate liquidity after the second insured dies ✓
2. Replace the income of a sole wage earner who has several young children at home
3. Cover a short-term business loan that must be fully repaid within five years
4. Fund a child's future college costs through the policy's accumulated cash value

Why: It pays at the second death and is widely used to fund estate taxes and costs.

Under Section 40(a), a health care plan that requires each enrollee to select a provider for coordination of care must permit the enrollee to choose:

1. Only the primary care physician assigned by the plan
2. Any available participating primary care physician licensed to practice medicine in all its branches ✓
3. A primary care physician located outside the plan's service area at no cost in that particular circumstance
4. Any physician in the State, whether or not participating in the plan

Why: Section 40(a) requires the plan to permit an enrollee to choose any available primary care physician licensed to practice medicine in all its branches who is participating in the plan, and to provide a choice of accessible, qualified providers.

Increasing term insurance is characterized by a death benefit that:

1. Rises over the policy term ✓
2. Stays exactly level for the whole duration of the contract
3. Falls steadily until it reaches zero at the end of the term
4. Is determined each year by the performance of a market index

Why: Increasing term's face amount grows over time (often used with return-of-premium or to track inflation); decreasing term does the opposite.

The McCarran-Ferguson Act established that the insurance business is primarily regulated by:

1. The individual states ✓
2. A single federal insurance agency in Washington
3. The Internal Revenue Service and the U.S. Treasury
4. International treaty organizations and trade bodies

Why: McCarran-Ferguson (1945) affirmed that regulation of insurance is left to the states, except where federal law specifically applies.