Texas Life & Health Insurance License, Practice Exams

An HMO offering a basic health care plan must provide or arrange basic health care services to enrollees subject to what limitation?

1. A $1 million annual maximum benefit
2. Without limitation as to time and cost other than any limitation prescribed by commissioner rule ✓
3. A lifetime cap of $500,000
4. Only services rendered within the enrollee's county of residence for the coverage that is in force

Why: Sec. 1271.151 requires basic health care services be provided as needed without limitation as to time and cost except as limited by commissioner rule.

If an insured dies during the 31-day period in which the insured was entitled to convert to an individual policy but before that policy takes effect, what happens to the benefit?

1. No benefit is payable because the individual policy never became effective
2. The amount the insured could have converted is payable as a claim under the group policy ✓
3. Only a return of premium is owed
4. The benefit is paid only if the conversion application had already been submitted

Why: Sec. 1131.112 makes the convertible amount payable as a claim under the group policy and applies whether or not the application was made or the first premium paid.

A whole life policy subject to the nonforfeiture subchapter must include a table showing the policy's cash values and available options for at least how many years?

1. The first 20 years the policy will be in force ✓
2. The first 10 years the policy will be in force
3. The first 15 years the policy will be in force
4. The entire life of the insured

Why: Sec. 1101.155 requires a table showing, in dollar amounts, cash values and options for each of the first 20 years the policy will be in force or each year premiums are payable.

Credit life insurance is typically structured so that:

1. The face amount increases over the life of the underlying loan
2. It is decreasing term with the creditor named as the beneficiary ✓
3. The borrower's family receives the full original loan amount in cash
4. Coverage continues at the same level long after the loan is repaid

Why: Credit life is usually decreasing term equal to the outstanding debt, with the lender as beneficiary; it cannot exceed the loan balance.

A pure (straight) life annuity payout option provides:

1. The largest periodic payment, but nothing to anyone after the annuitant dies ✓
2. A guaranteed refund of all unused premiums to a named beneficiary
3. Payments for a fixed number of years regardless of the annuitant's life
4. Equal payments split between the annuitant and a surviving spouse

Why: Pure life pays the highest income because payments stop at death with no refund or beneficiary payment; refund and period-certain options pay less but protect a beneficiary.

Premiums an individual pays for their own personal life insurance are:

1. Not deductible for federal income-tax purposes ✓
2. Fully deductible as an itemized personal expense
3. Deductible only if the policy is term insurance
4. Deductible up to an annual IRS-set dollar limit

Why: Personal life insurance premiums are a personal expense and are not income-tax deductible.

Medicare Part A would help pay for which of the following?

1. A covered inpatient hospital stay ✓
2. A routine outpatient physician office visit
3. A self-administered prescription filled at a pharmacy
4. Long-term custodial care in a nursing home

Why: Part A covers inpatient hospital, skilled nursing, hospice, and some home health; physician visits are Part B and drugs are Part D.

Under § 541.060, misrepresenting a material fact or policy provision to a claimant is:

1. A prohibited unfair settlement practice ✓
2. Permissible if unintentional
3. Allowed during investigation
4. Required by the prompt-pay law

Why: Misrepresenting a material fact or policy provision relating to coverage at issue is an unfair settlement practice.

Charging different premiums to two Texas applicants of the same class and equal risk is:

1. Unfair discrimination ✓
2. Permissible underwriting
3. Required by TDI
4. An example of rebating

Why: Unfair discrimination between individuals of the same class and essentially the same risk is prohibited under Chapter 541.

Nonoccupational disability coverage pays benefits for disabilities that occur:

1. Off the job (work-related injuries are covered by workers' compensation) ✓
2. Only while the insured is actively performing job duties at work
3. At any time, on or off the job, with no other coverage needed
4. Solely from illnesses, never from any type of accidental injury

Why: Nonoccupational coverage excludes on-the-job injuries (covered by workers' compensation); occupational/24-hour coverage applies both on and off the job.

Under Texas law, the standard policy provisions required for individual life insurance policies apply to group life insurance policies in what way?

1. They apply in full to every group life policy
2. They do not apply to group life policies ✓
3. They apply only to group term life policies
4. They apply only when the group has fewer than ten members

Why: Sec. 1131.101(b) states the standard provisions required for individual life policies do not apply to group life policies; group policies instead carry the provisions prescribed by that subchapter.

A $1,000 covered expense is submitted to two health plans. The primary plan pays $800. Under coordination of benefits, the secondary plan typically pays:

1. $200 ✓
2. $800
3. $1,000
4. $0

Why: COB limits total payment to 100% of the expense; the secondary plan pays the remaining $200, not a duplicate benefit.

An employee electing Texas state continuation must pay the employer the required contribution plus an additional amount. That additional amount is:

1. An additional 2 percent of the group rate for the coverage being continued ✓
2. An additional 50 percent of the group rate as an administrative surcharge
3. An additional 15 percent of the group rate for the coverage being continued
4. No additional amount; the employee pays only the employer's contribution

Why: Sec. 1251.254 requires the continuee to pay the employer's required contribution plus 2 percent of the group rate for the coverage being continued.

A funeral prearrangement life insurance agent sells coverage to fund a prepaid funeral contract. Under the limit on that agent's authority, how large may the death benefit be?

1. It may not exceed the total cost of the prepaid funeral benefits purchased under the prepaid funeral contract, except as otherwise provided by Finance Code Section 154.2021 ✓
2. It may be written for any amount the purchaser requests, provided the prepaid funeral contract is regulated by the Texas Department of Banking and the appointing insurer has approved the death benefit in advance
3. It may not exceed $25,000 of initial guaranteed death benefit on any one life regardless of the funeral contract cost
4. It may not exceed the agent's annual aggregate direct premium limit of $20,000 written in the preceding calendar year

Why: A funeral prearrangement life insurance agent may not write coverage with an initial guaranteed death benefit exceeding the total cost of the prepaid funeral benefits purchased, except as provided by Finance Code Sec. 154.2021.

An immediate annuity is characterized by income payments that begin:

1. Within one payment interval of purchase (generally within a year) ✓
2. Only after a deferral period of at least ten years in most situations
3. Exactly when the annuitant reaches age 65
4. After the annuitant submits proof of insurability

Why: A single-premium immediate annuity (SPIA) starts payments within one payment period — usually within 12 months — of the lump-sum purchase.

Annuitization differs from a systematic withdrawal because annuitization:

1. Converts the account into a guaranteed stream of income payments ✓
2. Lets the owner take any amount at any time with no schedule at all
3. Always returns the full account value in one immediate lump sum
4. Permanently freezes the account so no further access is possible

Why: Annuitization exchanges the accumulated value for a guaranteed income stream; systematic withdrawal keeps the account and takes flexible amounts.

Under the transfer-for-value rule, when a life policy is transferred for valuable consideration, the death benefit may:

1. Always remain fully income-tax-free to the new owner
2. Become partly taxable as income to the policy's new owner ✓
3. Lose its cash value but keep its income-tax exemption
4. Be doubled to offset the buyer's purchase price

Why: Transferring a policy for value can make part of the death benefit taxable income to the transferee, unless an exception applies.

A key feature of convertible term insurance is that it can be changed to a permanent policy:

1. Only after a new medical exam
2. Without providing evidence of insurability ✓
3. Only if the insured becomes disabled
4. Only in the first policy year

Why: Convertible term can be converted to permanent coverage without evidence of insurability.

An insurer that violates the Texas prompt-payment-of-claims deadlines owes the claimant, in addition to the amount of the claim:

1. A fixed administrative fine of five hundred dollars per claim
2. 18% per year on the claim amount plus reasonable attorney's fees ✓
3. Automatic treble (triple) damages in every late-payment case
4. No additional amount, provided the insurer eventually pays

Why: Section 542.060 imposes, for violating the prompt-pay deadlines, a penalty of 18% per annum of the claim amount plus reasonable attorney's fees.

A Medicare Part D late enrollment penalty generally results in:

1. A permanently higher monthly premium for prescription drug coverage ✓
2. A complete and permanent denial of any future drug coverage
3. A one-time flat fee paid at the first prescription fill
4. A reduction in the beneficiary's Social Security retirement check

Why: Going without creditable drug coverage after eligibility generally adds a permanent surcharge to the Part D premium.

Of the continuing education hours an agent must complete each license period, what does the Insurance Code require regarding the setting in which the hours are earned?

1. All required hours must be completed in a classroom setting unless the agent obtains a hardship waiver from the commissioner
2. At least 50 percent of all required continuing education hours must be completed in a classroom setting or a classroom-equivalent setting approved by the department ✓
3. No more than 50 percent of the required hours may be completed through self-study, correspondence, or online coursework, and the remainder must be earned in a live classroom setting
4. At least 25 percent of required hours must be completed in a live classroom located within this state

Why: At least 50 percent of all required CE hours must be completed in a classroom setting or department-approved classroom-equivalent setting.

If a policyowner surrenders a cash-value life policy, the taxable amount is:

1. The cash value received that exceeds total premiums paid ✓
2. The entire cash value received, taxed fully as a capital gain
3. Always zero, because life insurance proceeds are never taxable
4. The full death benefit that the policy would have paid out

Why: On surrender, the gain (cash value minus the cost basis of premiums paid) is taxed as ordinary income.

An insured and the sole primary beneficiary die in the same crash, order of death unknown. Under the Uniform Simultaneous Death Act, proceeds go to:

1. The contingent beneficiary or the insured's estate ✓
2. The primary beneficiary's heirs under the policy's terms
3. The first to be pronounced dead
4. The insurer, as unclaimed funds

Why: The Act presumes the insured survived the beneficiary, so the proceeds pass to the contingent beneficiary or the insured's estate.

While a permanent life policy is in force, the growth of its cash value is:

1. Tax-deferred (not taxed as it accrues) ✓
2. Taxed annually as ordinary income
3. Taxed annually as a capital gain
4. Subject to an annual excise tax

Why: Inside-buildup of cash value grows tax-deferred; tax may apply only on surrender of a gain or in a MEC.

A variable life insurance policy typically guarantees:

1. A minimum death benefit regardless of separate-account performance ✓
2. A fixed cash value that can never decline in any market
3. A level premium that is invested entirely in government bonds
4. That the policy can never become a modified endowment contract

Why: Variable life guarantees a minimum death benefit, but the cash value (and any benefit above the minimum) varies with the separate accounts the owner directs.

Under a 'recurrent disability' provision, if the insured becomes disabled again from the same cause within the stated time, the insurer treats it as:

1. A continuation of the prior claim, with no new elimination period ✓
2. An entirely new claim requiring a fresh elimination period
3. An automatic doubling of the monthly benefit amount
4. A reason to cancel the policy and refund the premiums

Why: A recurrence of the same disability within the stated period (e.g., six months) is a continuation, so the insured need not satisfy a new elimination period.

In the application process, the producer often acts as the 'field underwriter,' meaning they:

1. Gather information and make an initial assessment of the risk ✓
2. Set the final premium and issue the policy under the policy's terms
3. Pay claims on behalf of the insurer
4. Audit the insurer's financial statements

Why: As field underwriter the producer collects accurate information and screens obvious risks before formal underwriting.