Michigan Life & Health Insurance License, Practice Exams

Under MCL 500.4001, a 'flexible premium universal life insurance policy' is one that permits the policyowner to:

1. Vary, independently of each other, the amount or timing of one or more premium payments or the amount of insurance ✓
2. Change insurers without underwriting
3. Borrow more than the cash value
4. Convert to a fixed annuity at any time

Why: MCL 500.4001(c) defines a flexible premium universal life policy as one that permits the policyowner to vary, independently of each other, the amount or timing of one or more premium payments or the amount of insurance.

The optional 'intoxicants and narcotics' provision states that the insurer is not liable for a loss resulting from the insured:

1. Being intoxicated or under the influence of a non-prescribed narcotic ✓
2. Traveling outside of the United States for any business reason
3. Participating in a non-hazardous recreational sporting activity
4. Failing to disclose a minor childhood illness on the application

Why: This optional provision excludes losses sustained while the insured is intoxicated or under the influence of narcotics not taken on a physician's advice.

A producer convinces a client to drop a policy at Company A and buy one at Company B using misleading comparisons. This is:

1. Twisting ✓
2. Churning
3. Rebating
4. Coercion

Why: Inducing a replacement between different insurers through misrepresentation is twisting; doing it within the same insurer is churning.

Which nonforfeiture option uses the cash value to buy a smaller, fully paid-up whole life policy?

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

Why: The reduced paid-up option applies the net cash value as a single premium to buy a smaller permanent policy with no further premiums due.

Accelerated death benefits paid to a chronically ill insured are generally received income-tax-free when:

1. Used for qualified long-term care, up to a per-diem limit ✓
2. The insured is under the age of fifty-nine and one half
3. The policy has been in force for fewer than two years
4. The benefit is paid as a single lump sum to the estate

Why: For a chronically ill insured, accelerated benefits are tax-free if used for qualified LTC services, subject to a daily (per-diem) limit.

A single-premium deferred annuity (SPDA) is funded by:

1. One lump-sum payment, with income beginning at a later date ✓
2. A series of flexible payments made over the annuitant's working years
3. Mandatory monthly payroll deductions required by the employer plan
4. Premiums that the insurer deducts directly from Social Security checks

Why: An SPDA is purchased with one lump sum; the accumulation grows tax-deferred until payouts begin at a future date.

Which of the following is a DISCRETIONARY cause under section 1239(2) (director MAY discipline or refuse a license)?

1. Forging a name on an application
2. Improperly converting money received in insurance business
3. Obtaining a license by fraud
4. Having a producer license denied, suspended, or revoked in another state ✓

Why: Section 1239(2)(c) lists having an insurance producer license or its equivalent denied, suspended, or revoked in another state, province, district, or territory as a discretionary cause.

Retirement plan 'catch-up' contributions allow individuals to contribute additional amounts once they reach age:

1. 50 ✓
2. 40
3. 59 and one half
4. 65

Why: Participants age 50 and older may make catch-up contributions above the standard annual limits to IRAs and employer plans.

In a health maintenance organization (HMO), the primary care physician acts as a 'gatekeeper,' meaning the member usually must:

1. Get a referral before seeing a specialist ✓
2. Pay the full cost of every visit out of pocket first
3. Choose a new physician each calendar year automatically
4. Submit all claims directly to the state insurance department

Why: In a gatekeeper HMO, the PCP coordinates care and must refer the member before specialist services are covered.

A tax-sheltered annuity (TSA / 403(b)) is available to employees of:

1. Public schools and certain tax-exempt nonprofit organizations ✓
2. Only for-profit corporations listed on a stock exchange
3. Any employer, with no limits on annual contribution amounts
4. Federal agencies exclusively, in place of Social Security

Why: 403(b) tax-sheltered annuities are for employees of public schools and 501(c)(3) tax-exempt organizations; contributions are pre-tax and grow tax-deferred.

Under MCL 500.3400, an insurer may omit the entire-contract, reinstatement, and physical-examination provisions from what type of policy?

1. Group disability policies
2. Ticket policies sold only to passengers by common carriers ✓
3. Medicare supplement policies
4. Long-term care policies

Why: MCL 500.3400(3) allows omission of the provisions required under sections 3407, 3411, and 3420 from ticket policies sold only to passengers by common carriers.

The participation/dividend provision in MCL 500.4020 is NOT required in which type of policy?

1. Non-participating policies ✓
2. Whole life policies
3. Endowment policies
4. Policies with face amounts over $100,000

Why: MCL 500.4020 states the participation provision shall not be required in non-participating policies.

Under the optional Michigan UNPAID PREMIUM provision, upon payment of a claim the insurer may:

1. Cancel the policy immediately
2. Deduct any premium then due and unpaid from the claim payment ✓
3. Charge a 10% late fee
4. Demand the unpaid premium within 10 days or void the claim

Why: MCL 500.3446 provides that upon payment of a claim, any premium then due and unpaid (or covered by a note or written order) may be deducted from the claim.

An occupational classification system in disability underwriting means that:

1. More hazardous occupations are charged higher premiums ✓
2. Every applicant pays exactly the same premium rate
3. Only office workers are eligible for any coverage
4. The benefit period is set by the insured's job title

Why: Insurers group occupations into classes by risk; higher-risk occupations receive higher premiums or more limited benefits.

Variable universal life (VUL) insurance combines:

1. Flexible premiums with policyowner-directed separate-account investments ✓
2. A fixed level premium with a guaranteed minimum cash value at all times
3. Decreasing term coverage with a built-in cost-of-living adjustment
4. Group coverage that requires no individual evidence of insurability

Why: VUL merges universal life's premium and death-benefit flexibility with variable separate accounts; the owner bears the investment risk.

Under the Michigan PHYSICAL EXAMINATIONS AND AUTOPSY provision, who bears the expense of a physical examination of the insured during the pendency of a claim?

1. The insurer, at its own expense ✓
2. The insured
3. The treating provider
4. Split equally between insurer and insured

Why: MCL 500.3420 provides that the insurer, at its own expense, has the right to examine the insured at reasonable times during the pendency of a claim.

A child (children's) term rider added to a parent's life policy:

1. Provides level term coverage on the insured's children for a small added premium ✓
2. Pays the parent a monthly income benefit until each child turns eighteen
3. Automatically converts the parent's policy into a joint survivorship plan
4. Waives the parent's premiums whenever a covered child becomes ill

Why: A child term rider covers the insured's children under one rider, usually convertible to permanent coverage without evidence.

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.

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 'life income with period certain' settlement option guarantees:

1. Income for life, with a minimum number of years paid to a beneficiary ✓
2. The single largest possible payment, but nothing after the payee dies
3. A lump-sum distribution of the entire proceeds at the payee's request
4. Payments that continue jointly for two named annuitants for life

Why: Life income with period certain pays for the payee's life but guarantees payments for at least a stated period; a beneficiary receives the remainder if the payee dies early.

Under MCL 500.4018, if there is a misstatement of the insured's age or sex in a Michigan life policy, how is the benefit adjusted?

1. The amount payable is that which would be purchased by the most recent mortality charge or premium at the correct age or sex ✓
2. The policy is voided
3. The benefit is reduced by a flat 10%
4. The insurer simply collects the unpaid premium difference and pays the full face amount

Why: MCL 500.4018 requires that on a misstatement of age or sex, the amount payable or death benefit be that which would be purchased by the most recent mortality charge or premium at the correct age or sex.

Policy dividends paid on a participating life policy are best described as:

1. A return of premium that was overcharged ✓
2. Taxable investment income that the insurer guarantees every single year
3. A penalty the insurer pays for poor investment performance during the year
4. Interest credited at a rate set by the state insurance department

Why: Dividends are a non-guaranteed return of overpaid premium and are generally not taxable until they exceed the total premiums paid.

Under MCL 500.3905(2), before certain non-home-care LTC coverages take effect, care must first be recommended by persons provided in the policy and approved by the commissioner, OR:

1. Prescribed by a licensed treating physician ✓
2. Approved by the insured's family
3. Reviewed by a hospital board
4. Ordered by a court

Why: MCL 500.3905(2) allows that, for coverage other than home care, care must first be recommended and approved by the commissioner or prescribed by a licensed treating physician before coverage takes effect.

Under Section 2008, failing to pay a premium adjustment, dividend, or similar amount owed to a worker's compensation insured on a 'timely basis' is an unfair act. If the amount is due pursuant to a payroll audit, 'timely' means within how many days after completion of the audit?

1. 30 days
2. 60 days ✓
3. 90 days
4. 120 days

Why: Sec. 2008(3)(a) defines 'timely basis,' for an amount due pursuant to a payroll audit, as within 60 days after completion of that audit. Unpaid amounts then bear 12% simple interest under subsection (4).

Under MCL 500.2006, a health plan must notify the provider of all known reasons a claim is not a clean claim within how many days after receipt?

1. 10 days
2. 45 days
3. 60 days
4. 30 days ✓

Why: MCL 500.2006(8)(b) requires the health plan to notify the provider within 30 days after receipt of all known reasons that prevent the claim from being a clean claim.

A 'stock' insurance company is:

1. Owned by stockholders and may pay them dividends ✓
2. Owned by its policyholders, who receive policy dividends
3. A nonprofit organized under the lodge system
4. An unincorporated group of subscribers

Why: A stock insurer is owned by shareholders (dividends are taxable shareholder dividends); a mutual insurer is owned by policyholders.

The Medicare supplement basic core package covers the reasonable cost of how many pints of blood (or equivalent packed red blood cells) under Parts A and B, unless replaced?

1. The first 2 pints
2. The first 5 pints
3. All blood with no limit
4. The first 3 pints ✓

Why: MCL 500.3807(1)(d) requires coverage for the reasonable cost of the first 3 pints of blood or equivalent quantities of packed red blood cells under Parts A and B, unless replaced.