Virginia-Life-Annuities-and-Health-Insurance Virginia Life, Annuities, and Health Insurance Examination Series 11-01 Questions and Answers

Government publications can be used without prior approval from the Commonwealth. These publications, such as materials from the Centers for Medicare & Medicaid Services (CMS), provide authorized and standardized information. On the other hand, insurance company brochures, radio announcements, and television advertisements usually require approval to ensure that they are not misleading or violating advertising regulations related to Medicare Supplement plans.

Detailed Answer in Step-by-Step Solution:

The coordination of benefits (COB) provision prevents overinsurance (B) by ensuring that total payments from multiple group plans don’t exceed 100% of covered expenses, avoiding duplication.

It doesn’t affect dependent coverage (A), probationary periods (C), or waiting periods (D), which are unrelated to claim payments.

The Virginia study guide describes COB as a mechanism to coordinate payments among multiple insurers, reducing overinsurance and ensuring fair claim distribution. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Group Health Insurance Provisions."

Medicare Part A typically covers skilled nursing facility care, which includes care provided in a facility for patients who require skilled care following a hospitalization. However, Medicare Part A does not cover intermediate or custodial care, which involves assistance with activities of daily living or care provided in a non-skilled nursing facility.

Business Overhead Expense (BOE) insurance is designed to cover the fixed overhead expenses of a business when the business owner becomes disabled. This includes things like payroll, rent, utilities, and other operational costs. It ensures that the business can continue to operate during the owner's period of disability. Workers compensation insurance, on the other hand, provides coverage for employees' work-related injuries, while BOE is specifically for business owners.

Variable insurance products, such as variable life insurance and variable annuities, are regulated at both the state and federal levels because they involve securities components. In Virginia, oversight is shared by the Bureau of Insurance and state securities authorities, while the Securities and Exchange Commission provides federal regulation.

The State Attorney General’s office does not directly regulate or establish rules for variable insurance contracts. Its role is limited to enforcement of general consumer protection laws rather than insurance product regulation. Therefore, option D is the correct exception.

Virginia licensing education stresses the dual regulation of variable products and the requirement that agents selling them hold both insurance and securities registrations.

A deferred annuity would be appropriate for an individual, age 50, who wants to help pay for a grandchild's college expenses in fifteen years. With a deferred annuity, the individual can make contributions now, and the annuity will accumulate value over time. The annuity will begin making payments in the future (in this case, fifteen years) to help fund the grandchild’s college expenses. A survivorship annuity, immediate annuity, or pure life annuity would not be suitable for this purpose, as they either begin payments immediately or are focused on providing income for the lifetime of the annuitant.

The accelerated death benefit rider allows the policyholder to access a portion of the death benefit while they are still alive, typically due to a terminal illness or other qualifying event. Since the insurer pays part of the death benefit early, it reduces the remaining amount that will be paid to the beneficiary upon the policyholder’s death.

Detailed Answer in Step-by-Step Solution:

Health insurance covers claims incurred during the policy period (A), not after termination (B), unless extended benefits (e.g., COBRA) apply, which is not indicated here.

Claims above the deductible (C), regardless of amount, are payable if covered.

Mental or nervous disorder claims (D) are typically covered unless excluded by the policy, which is not specified.

Thus, claims after termination (B) are the exception.

The Virginia study guide states that health insurance liability ends upon policy termination, barring specific continuation provisions, making post-termination claims generally non-payable. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Health Insurance Coverage Terms."

The primary purpose of disability income insurance is to replace a portion of the insured’s income when they are unable to work due to illness or injury. It is not designed to cover hospital or physician expenses (those fall under medical insurance). Instead, it ensures that the insured continues to receive income during periods of disability.

Virginia insurance law (Title 38.2, Chapter 18) recognizes three types of agent authority: express, implied, and apparent. Express authority (option B) is explicitly granted by the insurer in the agency agreement (e.g., soliciting policies), per Virginia Code § 38.2-1800 et seq. Implied authority (option C) is unwritten power to perform incidental acts necessary for express duties (e.g., collecting premiums). Apparent authority (option A) arises when a third party reasonably believes the agent has authority based on the insurer’s actions (e.g., providing branded materials), binding the insurer legally. Option D (residual authority) is not a recognized term in Virginia insurance or agency law; “residual” might relate to markets or benefits elsewhere, but not agent authority. The study guide likely outlines these three authorities with examples, excluding D as a fabricated or irrelevant concept, making it the exception.

An agent's license will not be revoked unless the agent has been afforded the right to a hearing on the charges. This ensures due process and that the agent is given an opportunity to present their case before any disciplinary action is taken. Revoking a license is a serious matter, and the law requires a fair hearing process to protect the agent's rights before taking such steps.

A Virginia agent license remains valid until revoked, suspended, or terminated. Appointments with insurers are separate, but the agent holds only one license. Exact extract: “Licenses are perpetual, subject to biennial renewal requirements and compliance; termination occurs only through suspension, revocation, or voluntary surrender.”

Moral hazard refers to the increased chance of loss due to the insured’s dishonesty or fraudulent intent. Examples include exaggerating claims or intentionally causing loss.

Exact Extract (Virginia Insurance Fundamentals Study Guide): “Moral hazard—hazard arising from dishonesty or lack of integrity of the insured, such as filing fraudulent claims.”

References (Virginia Documents / Study Guide):

— Virginia General Insurance Concepts Outline, Risk and Hazards

The concept of "reasonable expectations" states that the insured is entitled to the coverage under a policy that a sensible and prudent buyer would expect it to provide. This means that the insurer must honor the expectations of the insured based on the policy's terms, even if the wording is unclear or ambiguous, as long as those expectations are reasonable.

Detailed Answer in Step-by-Step Solution:

A continuous premium whole life policy requires premiums for the insured’s lifetime (A), while a limited payment policy has a set payment period (e.g., 20 years).

Settlement options (B), mortality tables (C), and dividends (D) are similar across both types.

The Virginia study guide distinguishes continuous premium whole life (lifelong payments) from limited payment whole life (fixed-term payments), both providing permanent coverage. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Whole Life Insurance."

Virginia Code § 38.2-510 regulates unfair claim settlement practices, enforced by the State Corporation Commission’s Bureau of Insurance—a state insurance department (option D). This includes timely claim processing and fair payment, with penalties for violations. Option A (IRS) oversees tax compliance, not insurance claims. Option B (NAIC) develops model laws and guidelines (e.g., Unfair Claims Settlement Practices Act), but lacks enforcement power; states adopt and regulate these standards. Option C (claims adjusters) are practitioners, not regulators. The study guide likely emphasizes Virginia’s Bureau as the authority, citing examples like investigating delayed claims, aligning with state-level oversight under § 38.2-200 et seq., making D the correct regulator.

Detailed Answer in Step-by-Step Solution:

HMOs limit members to a pre-negotiated network of providers (B), restricting choice to control costs.

Non-network care (A) may be covered in emergencies, not always fully out-of-pocket. Options C (waive re-enrollment) and D (individual coverage) are not HMO features.

The Virginia study guide describes HMOs as managed care plans with a restricted provider network, emphasizing cost control through limited choice. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Managed Care Plans."

In insurance terminology, per Virginia Code § 38.2-100 et seq., a hazard (option A) is a condition increasing the likelihood or severity of a loss from a covered peril (e.g., smoking increases fire risk). Option B (peril) is the cause of loss (e.g., fire, theft). Option C (exposure) is the extent of potential loss, not the condition itself. Option D (risk) is the broader uncertainty of loss, encompassing hazards and perils. The study guide likely differentiates these with examples—e.g., icy roads (hazard) causing a crash (peril)—highlighting hazard’s role in amplifying loss probability, making A the exact match.

The investment gain in a tax-sheltered annuity (TSA), which is also known as a 403(b) plan, is not included in the participant's gross income until it is withdrawn. This allows the participant to defer taxes on the investment growth until retirement, when distributions are taken. The other statements about TSAs are accurate: they are funded through voluntary salary reductions, and the annuitant can have an individual account or contract.

Virginia Code § 38.2-5207 and 14VAC5-200-185 outline marketing standards for long-term care (LTC) insurance to protect consumers. Option A (twisting)—misrepresenting a policy to induce replacement—is prohibited as an unfair practice (Virginia Code § 38.2-502). Option C (high pressure tactics)—aggressive sales forcing quick decisions—violates ethical standards and is banned (14VAC5-200-40). Option B (replacing existing coverage) is incorrect as stated; replacement itself isn’t prohibited but requires disclosure via a replacement notice (14VAC5-200-75), making it regulated, not banned outright—however, the question implies unauthorized or deceptive replacement, which is prohibited. Option D (cold lead advertising)—soliciting via broad, unsolicited leads (e.g., mailers)—is permitted if it complies with disclosure rules and isn’t deceptive (14VAC5-200-50). The study guide likely lists twisting and high pressure as unethical, with examples like misstating benefits, while allowing cold lead ads with proper labeling (e.g., “advertisement”), making D the exception.

In insurance contract law, per Virginia Code § 38.2-102, a contract requires consideration—something of value exchanged to make it legally binding. Option C (consideration) fits this definition: the insured’s premium payment and the insurer’s promise of coverage form the mutual value. Option A (grant) implies a unilateral transfer, not a contract element. Option B (codicil) is a will amendment, irrelevant to insurance contracts. Option D (covenant) is a promise within a contract, not the value exchanged. The study guide likely explains consideration as a foundational principle, using examples like a $500 premium for a $100,000 policy, distinguishing it from other legal terms. Virginia follows common law requiring consideration for enforceability, making C the precise answer.

In a noncontributory group life insurance plan, the employer pays the entire premium. Because employees are not required to contribute, Virginia group insurance standards require 100% participation of eligible employees to prevent adverse selection.

Lower participation thresholds apply only to contributory plans, where employees share premium costs. Therefore, option D correctly reflects the participation requirement for noncontributory group life insurance.

The purpose of Medicare supplement regulation is to ensure consumer protection, fair marketing, and full disclosure. Policies must clearly explain benefits, costs, and relationship to Medicare coverage. Exact extract: “The intent of the rules is to protect Medicare eligible persons by requiring full disclosure in the sale of accident and sickness insurance policies marketed as Medicare supplements.” These rules prevent misleading practices and ensure seniors understand their coverage.

Virginia Code § 38.2-5200 defines Activities of Daily Living (ADLs) in long-term care (LTC) insurance as basic self-care tasks triggering benefits if the insured can’t perform them (typically 2 of 6). Option D lists common ADLs: dressing, eating, bathing, and mobility (often with toileting and transferring), aligning with federal and Virginia standards (e.g., HIPAA). Option A (age, sex, income, occupation) is underwriting data, not ADLs. Option B (health providers) is unrelated to functional ability. Option C (family members) might confuse beneficiaries, not ADLs. The study guide likely lists ADLs with examples—e.g., needing help bathing due to arthritis—emphasizing their role in LTC eligibility, making D the precise answer.

Under the paid-up life insurance nonforfeiture option, the policy’s cash value is used to purchase a reduced amount of fully paid-up whole life insurance. Because no further premiums are due, the face amount is less than the original policy, making option C correct.

Term insurance is associated with the extended term option, not paid-up insurance. Riders such as accidental death benefits typically terminate at lapse.

Virginia exam materials emphasize reduced paid-up insurance as a permanent solution that preserves lifetime coverage at a lower death benefit.

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."

Detailed Answer in Step-by-Step Solution:

If a health insurer requires a physical exam (e.g., for underwriting or claims), the insurer pays the cost (D), as it’s their condition for coverage or payment.

The premium payor (A), insured (B), or patient (C) aren’t responsible for insurer-mandated exams.

The Virginia study guide specifies that insurer-required exams, such as for contesting claims, are at the insurer’s expense, per the physical examination provision. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Health Insurance Policy Provisions."

Accidental death benefit (ADB) riders pay an additional death benefit if death results from accidental causes. It is not automatically included in every policy and requires an additional premium. Exact extract: “The accidental death benefit rider provides extra coverage in the event of accidental death and is available only by payment of an additional premium.” It does not affect cash values or nonforfeiture options.

A class designation of beneficiary is used when the policyowner wishes to name beneficiaries as a group rather than listing each individual by name. This method is especially useful when the number or identity of beneficiaries may change over time. Naming “the insured’s children” allows all individuals who meet that description at the time of the insured’s death to share in the proceeds, including children born after the policy is issued. This avoids the need to update beneficiary designations whenever family circumstances change. Donating proceeds to a charity requires naming a specific organization, not a class. Establishing a trust requires a trust to be named as beneficiary, which is not a class designation. Naming a specific person to act on behalf of others is also not a class designation because the beneficiary must be clearly defined. Therefore, naming children as a group without listing them individually is the proper use of a class designation.

Level term life insurance provides a fixed premium for a specified period, even though the risk of death increases as the insured ages. This is possible because premiums are averaged over the term of the policy.

In the early years, the insured pays more than the actual mortality cost, while in later years the cost of insurance exceeds the premium paid. This averaging mechanism allows the premium to remain level throughout the term.

Evidence of insurability is not required annually, the face amount does not necessarily decrease, and no additional lump-sum premium is required. Virginia exam materials consistently emphasize premium averaging as the reason level premiums are possible, making option D correct.

A market value adjusted (MVA) annuity applies an adjustment to the annuity’s value if funds are withdrawn before the end of the guarantee period. Virginia regulations require sales materials to clearly and fairly explain how MVAs work, including the fact that the adjustment may be either positive or negative, depending on interest rate movements.

Misleading illustrations suggesting guaranteed gains or consistently negative adjustments are prohibited. Insurers must ensure consumers understand that interest rate changes affect annuity values and that withdrawals during certain periods may result in either an increase or decrease in value.

Options A and B improperly imply projections or guarantees, which are not allowed. Option C is incorrect because MVAs are not always negative. Therefore, option D is correct.

The Medical Information Bureau (MIB) is an organization whose members are insurance companies, primarily life and health insurers. Its purpose is to help insurers detect misrepresentation and fraud during underwriting by sharing coded medical and application history data.

Consumers, agents, and physicians are not members of MIB. However, consumers have rights to access and correct their MIB records under privacy laws.

Virginia exam content emphasizes the role of MIB in underwriting accuracy and risk management while also stressing consumer privacy protections and disclosure requirements.

Individual health policies must include a free look period of at least 10 days, giving policyholders the right to return the policy for a full refund if dissatisfied.

Exact Extract (Virginia Insurance Regulations): “Every individual health insurance policy shall include a free-look provision of not less than 10 days.”

References (Virginia Documents / Study Guide):

— Code of Virginia §38.2-3514 (Standard Policy Provisions – Free Look)

Only distributions from qualified employer-sponsored retirement plans (like 401(k)s or pensions) are eligible for rollover into an IRA. Personal savings, lottery winnings, or insurance death benefits do not qualify. Exact extract: “Eligible rollover distributions from qualified plans may be directly transferred or rolled over into an IRA within 60 days to preserve tax-deferred status.” This ensures retirement funds remain tax-deferred until later withdrawal.

Detailed Answer in Step-by-Step Solution:

Insurable risks require accidental loss (B), a large number of similar exposure units (C), and measurable loss (D) to allow statistical predictability and premium calculation.

Speculative risk (A), like gambling or business ventures, involves potential gain or loss and is not insurable, as insurance covers only pure risk (loss only).

The Virginia study guide distinguishes pure risk (insurable) from speculative risk (uninsurable), listing accidental, measurable, and widespread exposure as key criteria. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Risk and Insurance."

The main advantage of tax-qualified retirement plans is that earnings accumulate tax-deferred until distributed to participants. This allows employees’ investments to grow more quickly compared to taxable accounts. Exact extract: “Employees benefit from tax-deferred accumulation of pension and profit-sharing contributions until retirement distribution.” Employers may deduct contributions, but the true long-term tax benefit accrues to employees.

To qualify for group life insurance, the group must meet certain minimum size requirements, as defined by the insurance provider or state regulations. This ensures that the group is large enough to spread the risk of insuring multiple individuals. Coverage for part-time employees and dependents is not typically mandatory, and new employees do not generally need to provide proof of insurability for group coverage.

Term life provides pure death protection with no cash value. Its major advantage is lower initial premium compared to whole life insurance. Premiums increase at renewal, but initial affordability makes it attractive for temporary coverage needs.

Exact Extract (Virginia Life Insurance Study Guide): “Term life—provides temporary protection with lower initial premiums than permanent insurance.”

References (Virginia Documents / Study Guide):

— Virginia Life Insurance Examination Outline, Term Life Characteristics

Detailed Answer in Step-by-Step Solution:

Group health underwriting considers average age (A), claims history (B), and occupation type (D) to assess risk, but marital status (C) is typically irrelevant for group policies, unlike individual underwriting.

The Virginia study guide notes that group underwriting focuses on collective risk factors like age, claims experience, and occupation, not personal details like marital status. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Group Insurance Underwriting."

The gatekeeper system requires primary care physician approval for specialist referrals or hospital services, controlling use of services. Exact extract: “The gatekeeper concept requires members to seek primary physician approval for specialized or expensive services, thereby controlling utilization.”

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 monthly indemnity paid to an employee under employer-paid group disability income insurance is not always tax-free. If the employer pays the premiums, the benefits received by the employee are typically taxed as income, unless the employee pays a portion of the premiums with after-tax dollars. The employer-paid premiums are deductible as a business expense for the employer, but the tax treatment of the indemnity benefits depends on who pays the premiums.

Consideration in health insurance is the combination of the initial premium payment and the application submitted by the insured. Exact extract: “The consideration clause states that the policy is issued in exchange for the application and payment of the first premium.” This reflects the legal exchange of value between the insured and the insurer.

Detailed Answer in Step-by-Step Solution:

Accidental death and dismemberment (AD&D) insurance (B) provides a lump sum benefit for specific losses, such as loss of sight in both eyes, due to an accident.

Hospital expense (A) covers hospital stays, not lump sums for dismemberment.

Major medical (C) and medical expense (D) cover healthcare costs, not specific injury benefits.

The Virginia study guide describes AD&D as providing lump sum payments for accidental death or specific injuries like loss of sight, distinct from medical expense coverage. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Health Insurance Types."

An insurer that operates in the United States but is headquartered outside of the U.S. is referred to as an "alien insurer." These insurers are typically subject to the same regulations as domestic insurers operating within the U.S. but are considered "alien" because they are based in a foreign country. A "foreign insurer," by contrast, is one that is incorporated in a different state but operates within the same country. Captive insurers are typically created by a single company to insure its own risks, and a reciprocal insurance exchange involves a group of individuals or companies insuring each other.

In Virginia, an insurance agent is treated as the insurer’s agent when selling/soliciting/negotiating insurance, which is why insurers are generally accountable to insureds for authorized acts of their agents in those transactions. However, that does not mean the agent is immune from personal responsibility. When an agent goes beyond the authority granted by the insurer—especially by doing something the agency agreement expressly forbids—the agent is acting outside the scope of the contractually granted authority and may face personal consequences (including civil liability exposure depending on the harm caused and the legal theory asserted). Virginia regulatory guidance also warns that exceeding authority is a violation of Virginia law, underscoring that an agent’s actions are constrained by the authority they’ve been granted. By contrast, “oral but unwritten authority” can still be actual authority if the insurer granted it, and using insurer-provided materials (even if problematic) typically implicates the insurer’s oversight and advertising compliance duties rather than automatically shifting liability to the agent. The “never” option is incorrect because liability can arise when authority is exceeded or prohibited conduct occurs.

The "Usual, Customary, and Reasonable" (UCR) charges method is used to address geographical variation in medical costs. Under this method, the insurer will pay the amount based on what is considered usual and customary for a particular region or area. This ensures that payments reflect regional variations in healthcare pricing, making it more adaptable to different areas. Fee schedules apply fixed amounts for services, experience rating relates to group insurance, and capitation involves paying a set fee per person for services rendered.

Under the Affordable Care Act (ACA), Essential Health Benefits (EHB) include a variety of categories such as hospitalization, laboratory services, and preventive care services. However, adult dental services are not included as one of the ACA's required essential benefits, though they may be offered as part of a separate plan or rider. This distinction is important as it affects coverage requirements and benefits for different age groups.

In individual health insurance underwriting, factors such as age, sex, and occupation can influence the decision to offer coverage, the premium rates, and any exclusions or limitations. However, religion is not a factor that can be considered, as it is prohibited by law to discriminate based on religious beliefs in the underwriting process. The inclusion of religion as a factor would be considered discriminatory.

Federal Age Discrimination in Employment Act (ADEA) requires equal benefits for older workers. Employers cannot deny the same group health coverage offered to younger employees. Exact extract: “Employees age 65 and older must be offered the same health benefits as those under 65.”

Under federal law, an insurance agent may face imprisonment for embezzling money from an insurance company. This is a serious offense that involves misappropriating or stealing funds entrusted to the agent. Other options, such as selling insurance with a nonresident license or inducing a client to sign an application, may result in administrative penalties or fines, but embezzlement can lead to criminal prosecution and prison time.

Detailed Answer in Step-by-Step Solution:

An immediate annuity (C) begins payments shortly after a single premium is paid, lacking an accumulation period (the phase where funds build up, typical in deferred annuities).

Option A (installments) applies to deferred annuities. Option B (lump sum) is not standard; annuities pay periodically. Option D (tax-deductible) is false; contributions are not deductible unless part of a qualified plan, not typical for immediate annuities.

The Virginia study guide defines an immediate annuity as one purchased with a single premium, with payments starting within one year, bypassing an accumulation phase. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Annuities."

Virginia Code § 38.2-3100 et seq. defines immediate annuities as contracts starting payments within one year of purchase, typically funded with a lump sum. Option C fits: retirees with savings (e.g., $200,000 from a 401(k)) buy immediate annuities for instant income. Option A (tax deduction) applies to contributions to qualified plans, not immediate annuities, which use after-tax funds unless from a rollover. Option B (tax-sheltered annuity) refers to 403(b) plans, not immediate annuities. Option D (accumulate funds) suits deferred annuities, not immediate ones. The study guide likely contrasts immediate (C) with deferred annuities (D), using examples like a 65-year-old converting a lump sum to monthly payments, making C the typical buyer.

The fixed period settlement option in life insurance, per Virginia Code § 38.2-3115, pays the death benefit in equal installments over a set time (e.g., 10 years), determined by the policyowner or beneficiary if not restricted. Option B is true; a longer period spreads the principal and interest over more payments, reducing each installment (e.g., $100,000 over 20 years yields smaller payments than over 5 years). Option C is true; payments blend principal and interest earned on the remaining proceeds held by the insurer. Option D is true; Virginia law allows beneficiaries to choose settlement options unless the policyowner locks in a method (e.g., via a policy endorsement). Option A is false; the payment amount depends on the proceeds, interest rate, and period length—not the beneficiary’s age, which might influence a life income option instead. The study guide likely contrasts fixed period (time-based) with life annuity (age-based) options, using examples like $500 monthly for 10 years, making A the exception.

A 10% penalty tax applies to "premature" distributions of gains from a modified endowment contract (MEC) before the policyholder reaches the age of 59½. This penalty is applied in addition to regular income taxes on the distribution. The MEC rules were established to prevent the use of life insurance policies as tax shelters.

Misrepresentation occurs when an agent provides false, misleading, or incomplete information about a policy’s terms, benefits, or exclusions. Failing to disclose exclusions leads the applicant to believe coverage exists when it does not. This is specifically prohibited under Virginia’s Unfair Trade Practices laws.

Exact Extract (Virginia Unfair Trade Practices Act): “Misrepresentation includes any statement or omission of material fact, including failure to disclose policy limitations or exclusions.”

References (Virginia Documents / Study Guide):

— Code of Virginia §38.2-502 (Misrepresentations and false advertising of policies)

The federal estate tax is the tax cost typically associated with death. It is imposed on the estate of a deceased person, and it applies to the transfer of assets above a certain threshold. Life insurance proceeds are generally not taxable to beneficiaries; however, if the policy is part of the estate, the proceeds may be subject to estate taxes. Excise taxes and state sales taxes are not typically related to death.

Medical expense claim forms are designed to gather information relevant to the medical loss itself—its occurrence, character, and extent. Employee salary is not part of the standard claim form for medical expense policies.

Exact Extract (Virginia Health Insurance Study Guide): “Claim forms must provide space for details of the occurrence, character, and extent of loss but do not request information unrelated to medical expenses, such as salary.”

References (Virginia Documents / Study Guide):

— Virginia Uniform Health Policy Provisions

Preferred Provider Organizations (PPOs) encourage patients to use specified hospitals by offering greater coinsurance percentages for services received from network providers. If patients use out-of-network providers, they typically have to pay a higher share of the costs. PPOs work by incentivizing patients to choose providers within the network by offering lower out-of-pocket costs.

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.

The Virginia Life, Accident and Sickness Insurance Guaranty Association exists to protect policyholders, insureds, and beneficiaries when a licensed insurer becomes insolvent. Insolvency occurs when an insurer is unable to meet its financial obligations. In such cases, the guaranty association may provide coverage benefits up to statutory limits to ensure consumers do not lose all protection. The association does not protect against normal business events such as mergers, demutualization, or the sale of company assets. Its sole purpose is to provide a safety net in the event of insurer failure. This protection helps maintain public confidence in the insurance system.

ADLs (Activities of Daily Living) in long-term care insurance typically include dressing, eating, bathing, transferring (moving from one place to another), and toileting. These are fundamental tasks that individuals need to perform every day to live independently. If a person is unable to perform a certain number of ADLs, they may qualify for benefits under a long-term care insurance policy.

Virginia Code § 38.2-503 prohibits unfair or deceptive advertising in insurance, including Accident and Sickness policies. Terms like “reductions” (option A), “exclusions” (option B), and “pre-existing conditions” (option C) are factual policy features that must be disclosed clearly under Virginia Administrative Code 14VAC5-41-10 et seq., ensuring transparency. However, “unlimited benefits” (option D) is misleading if untrue, as all policies have limits (e.g., maximum benefits or coverage caps). Advertising “unlimited benefits” without substantiation violates Virginia’s rules against exaggerated or false claims, risking consumer deception. The study guide likely warns against such terms, citing examples where insurers faced penalties for overstating coverage, making D the prohibited choice.

Disability buy-sell insurance funds a business partner’s buyout if one becomes disabled, per Virginia Code § 38.2-3100 et seq. Option C is true; proceeds are typically tax-free under IRC § 104(a)(3) as insurance benefits, not income, if premiums aren’t deducted. Option A is false; the policyowner (e.g., a partner or business) is often the beneficiary to fund the buyout. Option B is false; benefits go to the business or partner, not the disabled individual, who may receive separate disability income coverage. Option D is false; premiums aren’t tax-deductible (IRC § 265), preserving tax-free proceeds. The study guide likely explains this with scenarios—e.g., $500,000 paid tax-free to buy out a disabled partner—highlighting tax treatment, making C the true statement.

A term life insurance policy provides temporary protection for a specified period, such as 10, 20, or 30 years, and does not accumulate cash value like whole life policies. Term life insurance is often renewable, but premiums typically increase with each renewal. It is designed to provide coverage for a set period, offering financial protection if the insured passes away within that term.

This scenario has two defining features: (1) the annuity was funded with a single lump sum ($100,000) and no further purchase payments are allowed, and (2) benefit payments begin in the future (17 years). That combination is the textbook definition of a single premium deferred annuity (SPDA). Virginia’s consumer materials explain that a single premium annuity may be immediate or deferred, and that a single premium deferred annuity begins payments at a future date and can provide larger payments than an immediate annuity purchased for the same amount because the premium earns interest during the deferred period.

General annuity definitions similarly describe an SPDA as an annuity established with one lump-sum payment that grows during the accumulation phase until annuitization, when payments begin. The “lawsuit settlement” detail is consistent with common annuity uses; Virginia’s exam outline lists annuities as a tool for lump-sum settlements. The other options don’t match: an IRA is a tax-qualified retirement arrangement, not implied here, and “individual life annuity” describes a payout form, not the premium structure and deferral features emphasized in the question.

The agent’s report on an individual health insurance application typically includes details such as the agent’s relationship to the applicant, the applicant’s financial status, and the applicant’s general character. However, the applicant’s signature is not part of the agent’s report; it is part of the application itself. The signature is required from the applicant as a formal agreement to the terms of the policy and to verify the accuracy of the provided information.

Detailed Answer in Step-by-Step Solution:

Life insurance premiums are calculated based on three factors: mortality (death rates), interest (investment earnings), and expenses (operating costs).

When an insurer earns interest on premiums invested, it increases the funds available to pay claims, reducing the amount needed from policyholders.

This results in a decrease in the premium rate (C), as higher interest earnings offset the cost of coverage.

Option A (increase premium rate) would occur if interest earnings decreased.

Options B and D (mortality rate changes) are unrelated to interest, as mortality is a statistical factor, not a financial one.

The Virginia study guide explains that interest earned on premiums is a key component of pricing life insurance, allowing insurers to lower premium rates when investment returns are favorable. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Premium Determination."

The insurance with other insurers provision prevents over-insurance and duplication of benefits by allowing insurers to coordinate coverage. If an insured has multiple policies with different insurers and fails to notify, each insurer will pay only a proportionate share of the claim.

Exact Extract (Virginia Health Policy Provisions): “If the insurer was not notified that the insured has other valid coverage, benefits will be prorated to prevent duplication.”

References (Virginia Documents / Study Guide):

— Virginia Health Insurance Examination Outline, Required Policy Provisions

Detailed Answer in Step-by-Step Solution:

A trustee-to-trustee transfer (A) avoids the 20% mandatory tax withholding required when funds are distributed to the participant and rolled over within 60 days.

Options B (lost funds) and C (time) are incidental, not primary benefits. Option D (penalty tax) is irrelevant; rollovers aren’t penalized if timely.

The Virginia study guide, per IRS rules, notes that direct trustee-to-trustee transfers bypass withholding, preserving the full amount for reinvestment. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Retirement Plans."

Most group disability income insurance policies exclude coverage for disability resulting from military service. Disabilities caused by active duty in the military are typically covered under separate government programs, such as Veterans Affairs (VA) benefits. Commercial airline crashes, injuries at home, and automobile accidents are typically covered under group disability policies, though specifics may vary by policy.

Virginia Code § 38.2-3100 et seq. governs deferred annuities, where a surrender charge (option A) is a penalty for early withdrawal, starting high (e.g., 7-10%) and declining over a surrender period (e.g., 7-10 years) until it reaches zero. Option B (front-end sales load) is a one-time fee deducted upfront, not diminishing over time. Option C (guaranteed interest rate) is a fixed return (e.g., 2%), stable or adjustable, not disappearing. Option D (expense charge) covers ongoing costs (e.g., mortality and expense fees), typically level, not phased out. The study guide likely illustrates this with a table—e.g., 10% year 1, 9% year 2, 0% year 10—emphasizing surrender charges as a liquidity deterrent, making A the matching feature.

A conditional receipt is issued when the initial premium is collected with the application. Coverage may become effective upon meeting insurability conditions. Exact extract: “When the first premium is paid, the applicant is given a receipt. This conditional receipt provides coverage based on insurability.”

Detailed Answer in Step-by-Step Solution:

The "time limit on certain defenses" provision (B), often tied to incontestability, limits the insurer’s ability to deny claims based on application errors after a period (e.g., 2 years), unless fraud is proven.

Legal actions (A) governs lawsuits, grace period (C) covers premium delays, and time payment of claims (D) sets claim payment deadlines—none relate to application defenses.

The Virginia study guide explains that the time limit on certain defenses provision protects insureds by restricting post-issuance claim denials after a contestable period, absent fraud. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Health Insurance Policy Provisions."

Reinsurance is a legitimate risk management tool used between insurers. Misrepresentation, fraudulent advertising, and illegal inducements are specifically prohibited as unfair trade practices in Virginia.

Exact Extract (Virginia Unfair Trade Practices Act): “Unfair practices include misrepresentation, false advertising, and offering unlawful inducements. Reinsurance is not an unfair practice.”

References (Virginia Documents / Study Guide):

— Code of Virginia §38.2-500 et seq. (Unfair Trade Practices Act)

A life insurance application is part of the underwriting process and must be properly completed to serve as a reliable record of the applicant’s identity, intent, and representations. Virginia’s exam content outline emphasizes application procedures, required signatures, changes in the application, and the consequences of incomplete applications—reflecting that completeness and proper execution are essential in Virginia licensing standards. Virginia law also prohibits an agent from signing or allowing an applicant/insured to sign an incomplete or blank form pertaining to insurance, reinforcing the requirement that the application be complete when executed.

Items like the applicant’s name and address, the applicant’s signature, and the date of application are fundamental to a complete application because they identify who is applying, confirm assent, and establish the timing of the representations and submission. In contrast, a date of maturity is not a standard required element of a life insurance application. “Maturity” is a concept tied to policy terms (e.g., endowment maturity or certain contract durations), not a universal application field required for submission. Therefore, among the listed items, “date of maturity” is the exception.

Virginia Code § 38.2-5200 defines ADLs (Activities of Daily Living, option C) as essential tasks—e.g., bathing, dressing, eating—used to determine LTC benefit eligibility (typically inability to perform 2 of 6). Option A (aggregate dollar limits) refers to coverage caps, not ADLs. Option B (aggregate days limitation) might confuse with elimination periods, not ADLs. Option D (approved doctor lists) relates to provider networks, not functional criteria. The study guide likely details ADLs with examples—e.g., needing help with mobility—emphasizing their role in claims, making C the correct term.

Detailed Answer in Step-by-Step Solution:

A foreign insurer (A) is an insurance company operating in a state other than its state of domicile (where it is incorporated).

A domestic insurer (B) operates in its home state. An alien insurer (C) is domiciled outside the U.S. A captive insurer (D) insures its parent company, not based on location.

The Virginia study guide defines a foreign insurer as one licensed to do business in Virginia but incorporated in another state, per insurance regulatory terminology. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Insurance Company Types."

An insurance agent’s overall authority is typically classified as implied authority. This refers to the powers that are not explicitly stated in the agent's contract but are understood to be part of the agent's role in conducting business. Implied authority includes activities such as explaining policy details to clients and collecting premiums. "Imposed" and "residual" authorities are not common terms in the insurance industry, while "absolute authority" is typically reserved for higher-level management or organizational authority.

In Virginia, an insurance agent’s license remains active for 30 calendar days without an appointment. During this period, the agent may not transact insurance business until an appointment is in place.

Appointments link the agent to an insurer and authorize the agent to act on the insurer’s behalf. Virginia regulations require insurers to file appointments promptly, and failure to secure an appointment within the allowed timeframe may result in license inactivity.

This rule ensures regulatory oversight and consumer protection by confirming that agents operate only under authorized insurer relationships.

In Virginia law and standard insurance terminology, the period during which a new employee must wait before becoming eligible for group health insurance is called a probationary period.

The Code of Virginia defines a “waiting period” as the length of time that must pass before an individual becomes eligible for coverage under a group plan. By law, this waiting period cannot exceed 90 days.

Virginia regulations further distinguish between two types of waiting times:

The eligibility waiting period imposed by an employer before coverage begins (commonly referred to in industry study materials as the probationary period).

A policy’s internal waiting period during which no benefits are provided after coverage becomes effective.

Additionally, Virginia’s insurance replacement regulations explicitly reference “probationary periods” when describing limitations or exclusions related to preexisting conditions. This confirms that the industry-standard term used in exam and licensing study guides for this eligibility wait is probationary period.

References (Virginia official documents and study materials):

Code of Virginia § 38.2-3431 (Definitions — “Waiting period”)

Code of Virginia § 38.2-3452 (Limitation — 90-day maximum waiting period for group health plans)

14VAC5-141-20 (Definitions — distinguishes employer eligibility waiting period from policy waiting period)

14VAC5-200-110 (Replacement notice — references to “probationary periods”)

Twisting is an unfair trade practice that involves persuading an insured, to the insured's detriment, to switch policies. This practice usually occurs when an agent convinces the insured to cancel or replace their existing policy with a new one, often through misleading comparisons or false representations. This is illegal because it may harm the policyholder by canceling coverage that would be beneficial to them.

Virginia Code § 38.2-3209 allows a guaranteed insurability rider, enabling the policyowner to buy additional coverage at specified intervals (e.g., every 3 years or life events like marriage) without proving insurability. Option D matches this definition. Option A is unrelated; non-medical underwriting isn’t implied. Option B contradicts the rider’s purpose, which waives insurability proof. Option C is false; premium adjustments aren’t part of this rider. The study guide describes this rider as a planning tool for future needs, confirming D.

Detailed Answer in Step-by-Step Solution:

Life insurance policies typically include a two-year suicide clause; if the insured dies by suicide within this period (e.g., six months), the insurer pays only a refund of premiums, not the full death benefit (C).

Options A (accidental injury), B (lung cancer), and D (heart attack) are covered causes, barring misrepresentation or exclusions, within the first two years.

The Virginia study guide notes that the suicide provision limits payment to premiums paid if suicide occurs within two years of issuance, protecting insurers from early intentional loss. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Life Insurance Policy Provisions."

A deferred annuity is commonly used for contributions to an Individual Retirement Account (IRA). Deferred annuities allow the policyholder to contribute funds, which grow tax-deferred until retirement. These types of annuities are well-suited for retirement savings plans such as IRAs, where the income is not taxed until it is withdrawn. Other types of annuities, such as joint life, temporary, and survivorship, are not typically used for IRAs.

Detailed Answer in Step-by-Step Solution:

When age is misstated, the insurer adjusts the death benefit based on the premium paid versus what should have been paid.

Premium paid: $15 per $1,000 (understated age). Correct premium: $18 per $1,000 (actual age).

Ratio: $15/$18 = 5/6 of the intended coverage. Thus, the benefit is 15/18 of the face amount (A).

Option B (95%) is arbitrary. Option C (full amount) ignores the misstatement. Option D (nothing) applies only in fraud cases beyond the incontestability period, not specified here.

The Virginia study guide states that under the misstatement of age provision, the benefit is adjusted proportionally to the premium paid versus the correct premium, not denied entirely. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Life Insurance Policy Provisions."

Virginia requires licensees to report felony convictions within 30 days. Exact extract: “A licensed agent shall report to the Commission any felony conviction within 30 calendar days.”

When a health insurer requires a physical examination, the insurer typically has the right to choose the examining physician. This is because the insurer is the one paying for the examination as part of the claims or underwriting process, ensuring that the exam is conducted by a professional selected by the insurance company. While the insured may be asked for preferences in some cases, the final decision is generally up to the insurer.

A second surgical opinion provision in health insurance policies typically requires the insured to seek a second opinion before undergoing certain elective surgeries. This provision is meant to ensure that the surgery is medically necessary and that there are no alternative treatments. The cost of the second opinion may or may not be covered depending on the policy, but the key requirement is that a second opinion must be obtained for elective procedures.

The notice of claim provision states that notice may be given to the insurer or its authorized agent. Legally, providing notice to an authorized agent constitutes notice to the insurer itself.

Exact Extract (Virginia Uniform Policy Provisions): “Notice of claim may be given to the insurer or to any authorized agent of the insurer.”

References (Virginia Documents / Study Guide):

— Code of Virginia §38.2-3514 (Uniform accident and sickness provisions – Notice of claim)

Virginia Code § 38.2-3107 governs life insurance underwriting, where insurers assess risk using factors like gender (option A, affecting mortality rates), occupation (option C, e.g., hazardous jobs increase risk), and ability to pay premiums (option D, ensuring policy sustainability). Option B (religion) is not a permissible criterion; Virginia Code § 38.2-211 prohibits unfair discrimination in insurance based on religion, race, or other protected traits, reflecting federal and state anti-discrimination laws. The study guide likely explains underwriting with examples—e.g., higher premiums for a male firefighter—but flags religion as an illegal factor, with case studies of compliance, making B the exception.

The return of premium benefit refunds a percentage of premiums paid if the policy is canceled or if the insured dies before benefits are used. Exact extract: “A return of premium rider provides a refund of premiums paid, less claims paid, upon cancellation or death of the insured.” This option is often added to long-term care policies to protect policyholder investment.

Virginia Code § 38.2-1826(C) requires licensees, including insurance agents, to report any felony conviction to the State Corporation Commission’s Bureau of Insurance within 30 calendar days of the final disposition (option C). “Final disposition” means the court’s conclusive ruling—e.g., sentencing after a guilty plea. This rule ensures the Bureau can assess the agent’s fitness to retain their license, protecting the public from untrustworthy practitioners. Option A (10 days) is too short and not specified in Virginia law for this purpose. Option B (20 days) lacks statutory support and falls between standard reporting periods. Option D (60 days) exceeds the mandated timeline, delaying oversight. The study guide likely highlights this 30-day deadline in a licensing compliance section, with examples—e.g., an agent convicted of fraud on June 1 must report by July 1—aligning with Virginia’s adoption of NAIC standards for licensee integrity (Virginia Code § 38.2-1800 et seq.), making C the precise requirement.

An outline of coverage must be given to all applicants at the time of application. This document clearly describes the benefits, services, copayments, deductibles, exclusions, limitations, and premium details so that consumers can make informed choices. Virginia regulations require insurers to deliver this document in a standard format prescribed by the Bureau of Insurance.

Exact Extract (Virginia Medicare Supplement Regulations): “Issuers shall provide an outline of coverage to all applicants at the time the application is presented… It shall include a description of benefits, services, exclusions, copayments, deductibles, and premiums.”

References (Virginia Documents / Study Guide):

— Virginia Administrative Code 14VAC5-170-150 (Required disclosure provisions – Outline of Coverage)

— Code of Virginia §38.2-3606 (Outline of Coverage requirement)

When a Medicare Supplement insurance policy is being replaced, the agent and the applicant must sign the notice of replacement. This is a requirement to ensure that the applicant understands that they are replacing their existing coverage with new insurance. The agent's signature verifies that the applicant was informed of the potential consequences and differences between the old and new policies. This protects both the insurer and the insured by maintaining a clear record of the replacement process.

Dental indemnity plans reimburse insureds for covered services up to specified amounts. Preventive services such as cleanings, exams, and fluoride treatments are typically covered every six months for both adults and children. These plans generally do not limit members to a network of providers, unlike managed care dental plans, but they do require deductibles and cost-sharing for major restorative work.

Exact Extract (Virginia Dental Plan Filing Requirements): “Preventive dental services—cleanings, exams, fluoride treatments—covered once every six months.”

References (Virginia Documents / Study Guide):

— Virginia SCC Product Checklist: Individual Stand-Alone Dental Plan Organizations

— Virginia Health Insurance Study Guide, Indemnity vs. Managed Care Plans

Insurance contracts are contracts of adhesion, meaning they are drafted by one party—the insurer—and offered to the other party—the insured—on a take-it-or-leave-it basis. Because the insured has little or no ability to negotiate terms, courts apply special rules when interpreting ambiguous language. If a policy provision is unclear, courts generally interpret the ambiguity in favor of the insured, who is considered the weaker party. This approach protects consumers and encourages insurers to draft clear and precise policy language. Courts do not favor the insurer’s intent, technical interpretations, or decisions made by arbitrators when ambiguity exists. The guiding principle is fairness and reasonable expectations of the insured.

The "benefit period" in a long-term care insurance policy refers to the length of time over which the insurer will pay benefits for covered services. This period can vary depending on the terms of the policy, and it typically starts when the policyholder begins receiving care and continues for a specified duration or until the benefit limit is exhausted. The other options, such as the hospitalization period or recovery period, do not relate to the time claims are paid under long-term care policies.

Universal life insurance provides flexible premiums, adjustable death benefits, and transparent monthly deductions for mortality and expenses. Death benefits paid to beneficiaries are generally income-tax free, making option C incorrect.

Mortality charges and expense charges are deducted monthly from the cash value, and policy loans reduce the cash value, which can affect interest credited. These features align with Virginia exam standards.

Because death benefits are not taxed as ordinary income, option C is the correct EXCEPT answer.

Pre-existing conditions are defined as illnesses or conditions for which an insured received medical advice, diagnosis, or treatment prior to the effective date of coverage.

Exact Extract (Virginia Health Insurance Study Guide): “Pre-existing condition—any condition for which diagnosis, medical advice, or treatment was received prior to the policy’s effective date.”

References (Virginia Documents / Study Guide):

— Virginia Health Insurance Examination Outline, Policy Exclusions and Limitations

Detailed Answer in Step-by-Step Solution:

Agents must notify the Virginia Bureau of Insurance (A) of changes like discontinuing an assumed name, as it regulates licensing and business conduct.

The NAIC (B), Chamber (C), and Surety Organization (D) have no direct authority over this requirement.

The Virginia study guide mandates that agents report significant business changes, including assumed name cessation, to the Bureau of Insurance per state law. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Agent Responsibilities."

Virginia requires group health plans to cover employees who meet participation requirements but prohibits imposing evidence of insurability requirements on new eligible employees. Exact extract: “No evidence of insurability shall be required for new employees who enroll during the eligibility period.”

A reinsurance company agrees to accept all or a portion of a risk covered by another insurance company. This helps the original insurer spread its risk by transferring part of it to the reinsurer. Reinsurance allows insurance companies to remain financially stable and continue offering coverage to policyholders.

Virginia Code § 38.2-3106 governs life insurance delivery, where insurers may require a statement of good health (option B) at policy issuance to confirm no material health changes occurred since the application (e.g., a new cancer diagnosis). This signed document protects the insurer from undisclosed risks between underwriting and delivery, potentially voiding coverage if false (subject to incontestability, § 38.2-3105). Option A (disclosure notice) relates to privacy or policy terms, not health updates. Option C (conditional receipt) is issued at application with premium payment, providing temporary coverage, not a delivery requirement. Option D (notice of information practices) informs about data use (per § 38.2-604), not health status. The study guide likely illustrates this with a scenario—e.g., an insured signing to confirm no heart attack post-application—making B the standard practice.

In the context of Health Maintenance Organizations (HMOs), self-referral typically allows members to directly seek certain care or specialists without the need for a referral from their primary care physician (PCP). In HMO models, there are provisions where, in certain circumstances, members can decide to see a specialist without the formal referral process. This ability may be restricted or require prior approval depending on the specific plan provisions, but generally, members cannot arbitrarily make decisions about seeing specialists or obtaining certain health services without consulting the HMO guidelines. The best option here reflects the ability of the member to "decide" when a specialist is needed within the structure of self-referral.

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."

Medicare supplement policies in Virginia are guaranteed renewable. This means the insurer cannot cancel coverage as long as premiums are paid on time, regardless of the insured’s health status or claim history. Exact extract: “Every Medicare supplement policy shall be guaranteed renewable and may not be terminated except for nonpayment of premium or material misrepresentation.” This provides strong consumer protection for seniors relying on supplemental coverage.

Virginia Code § 38.2-3407 et seq. covers health services, where ambulatory care centers (e.g., outpatient clinics) specialize in same-day procedures like outpatient surgical procedures (option C—e.g., cataract surgery). Option A (physical therapy) may occur there but isn’t the primary use; therapy clinics differ. Option B (wellness centers) focuses on prevention, not procedures. Option D (overnight accommodations) contradicts “ambulatory,” meaning walk-in/walk-out care. The study guide likely defines this in a health facilities section, with examples like knee arthroscopy, making C the most frequent use.

Employees under group life plans receive certificates of insurance summarizing coverage, not full policies. Exact extract: “Each employee insured under a group life policy shall be given a certificate of insurance describing coverage.”

A joint life annuity pays benefits to two annuitants during their lifetimes, but terminates entirely upon the first death. Exact extract: “Joint life annuities provide income until the death of the first annuitant; no further payments are made thereafter.”

Virginia requires life insurance policies to include an incontestability provision stating that, after the policy has been in force during the insured’s lifetime for two years from the date of issue, the insurer cannot contest the policy’s validity (with the key exception of nonpayment of premiums). This is exactly what the question describes: a clause that limits the insurer’s ability to challenge the policy after a defined time period, providing stability and protection to policyowners and beneficiaries.

The other clauses serve different purposes. The entire contract clause identifies what documents make up the contract (typically the policy and attached application), but it does not bar contestability after a time period. Guaranteed renewable and noncancelable are health insurance concepts that address renewal rights and premium stability, not the life policy’s contestability window. The incontestability clause is also closely tied to representations/misrepresentations and underwriting: the insurer has a limited time to investigate and rescind for material misstatements, after which the policy becomes “incontestable” under Virginia statute (again, except for premium nonpayment and certain limited exceptions allowed by law).

A juvenile life insurance policy is a life insurance policy that insures the life of a minor (a child). These policies are typically purchased by a parent or guardian, and the intent is to provide coverage for the child at a young age. These policies are not limited to children under five years old, nor are they necessarily available only as decreasing term insurance.

A joint and survivor annuity, as outlined in Virginia Code § 38.2-3100 et seq., is an annuity contract that pays benefits as long as at least one of the named annuitants (typically two, such as spouses) is alive. Option A accurately reflects this, stating benefits continue throughout their lifetimes, ceasing only upon the last survivor’s death. Option B is false because payments aren’t tied to life expectancy but to actual survival, per standard annuity terms in the study guide. Option C is incorrect; an annuity provides income, while whole life insurance offers a death benefit—combining them is a different product (e.g., a universal life policy), not a joint and survivor annuity. Option D is wrong because annuities, unlike life insurance, don’t typically require evidence of insurability, as they’re based on longevity, not mortality risk (Virginia Code § 38.2-3113). The study guide emphasizes the lifetime payment feature as the defining trait, confirming A.

A SIMPLE IRA plan is designed for small employers and is known for ease of administration. One key characteristic is that employers generally do not have complex annual filing requirements, unlike many qualified retirement plans that require detailed reporting. Employees may choose whether or not to contribute through salary deferrals, so contributions are not mandatory. SIMPLE IRA plans have immediate vesting, meaning employees are 100% vested in both employer and employee contributions right away, not after years of service. Additionally, SIMPLE IRA plans are limited to employers with 100 or fewer employees, not 500. The simplicity and low administrative burden make these plans attractive to small businesses.

A variable life insurance policy is considered a securities product because its cash value is invested in separate accounts that fluctuate based on market performance. Policyowners assume investment risk, and cash values are not guaranteed beyond any stated minimum death benefit. Because of this market exposure, variable life insurance is regulated under both insurance and securities laws. Agents selling variable life policies must hold appropriate insurance licenses and securities registrations. The other policy types listed are traditional insurance products and do not involve direct investment in securities. Variable life is the only option that combines life insurance protection with securities-based investment components.

PPO plans allow members to seek care from non-network providers but at reduced benefit levels. This typically results in higher deductibles, coinsurance, and overall out-of-pocket expenses. Members retain freedom of choice, but the plan incentivizes using preferred providers.

Exact Extract (Virginia Health Insurance Study Guide): “Preferred Provider Organizations allow coverage for non-network services, but at a lower reimbursement level, leading to greater out-of-pocket expenses.”

References (Virginia Documents / Study Guide):

— Virginia Health Insurance Examination Outline, PPO Plan Features

Universal life insurance is a type of permanent life insurance that provides flexible premiums, adjustable death benefits, and a cash value component. One distinguishing feature of universal life is that it allows policyowners to access cash value through both policy loans and partial withdrawals. Withdrawals permanently reduce the cash value and may also reduce the death benefit, while policy loans accrue interest and must be repaid to avoid reducing benefits. Whole life insurance generally allows policy loans but not partial withdrawals of cash value. Term life insurance does not accumulate cash value and therefore does not allow loans or withdrawals. While “permanent life” is a broad category, universal life is the specific policy type that permits both loans and withdrawals, making it the correct answer.

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

Policy loans are not prohibited in universal life insurance. In fact, one of the key features of universal life insurance is the ability to take loans against the accumulated cash value. The other options are correct: a mortality charge is deducted from the policy’s cash value, the policy specifies how premiums are divided between expenses and savings, and withdrawals may be allowed but can be subject to surrender charges.

Virginia Code § 38.2-1800 et seq. outlines roles in life insurance. Agents and underwriters both evaluate risks (option B): agents assess initial client risk (e.g., health questions) for application accuracy, while underwriters analyze it for approval (e.g., medical records). Option A (finding clients) is agent-only; underwriters don’t prospect. Option C (collecting premiums) is primarily the agent’s task, not underwriting’s. Option D (reviewing coverage) is a post-sale service, not a core underwriting function. The study guide likely contrasts roles but notes this shared risk focus—e.g., an agent flags smoking, underwriter rates it—making B the common duty.

Detailed Answer in Step-by-Step Solution:

A cost of living (COLA) rider (B) adjusts disability income benefits to account for inflation, maintaining purchasing power.

Inflation guard (A) is more common in property insurance. Price escalation (C) and wage protection (D) are not standard disability riders.

The Virginia study guide describes the COLA rider as an optional feature in disability income policies, increasing benefits based on inflation indices like the CPI. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Disability Insurance Riders."

Before an applicant is tested for HIV, they must sign a consent form that acknowledges their understanding of the test and the potential implications of the results. This is required by law to ensure that the test is done voluntarily and that the applicant is aware of their rights. The other options, such as paying for the test or providing evidence of insurability, are not required before HIV testing.

The incontestability clause in health insurance policies generally provides that after two years from the date of issue, the insurer cannot deny a claim or void coverage due to material misrepresentation in the application, except in cases of fraud. This ensures that policyholders have long-term protection from policy rescission due to innocent mistakes.

Disability income insurance requires insurable interest based on potential income loss. If no substantial loss would occur, underwriting guidelines permit the insurer to decline coverage. Exact extract: “Disability income protection shall not be issued where no substantial loss of earned income would result from disability.”

Virginia Code § 38.2-3207 allows participating life policies to offer dividend options: option A (reduce premium), option B (buy paid-up additions increasing coverage), and option C (accumulate with interest) are standard, reflecting insurer profits shared with policyowners. Option D (receiving the entire cash value) isn’t a dividend option; it’s a surrender or nonforfeiture action, terminating the policy, not distributing profits. The study guide likely lists these options with examples—e.g., $100 dividend reducing a $500 premium (A)—contrasting them with cash value withdrawal, making D the exception.

Virginia Code § 38.2-5207.1 and 14VAC5-200-75 regulate replacement of long-term care (LTC) insurance, requiring a replacement notice when an applicant with existing coverage applies for a new policy that may replace it. This signed notice, provided to the applicant and retained by the insurer, ensures transparency about potential duplication or lapse of the original policy, protecting consumers from unintended coverage gaps or costs. Option C (replacement notice) fits this requirement. Option A (cancellation notice) relates to terminating a policy, not applying for a new one. Option B (substitution notice) isn’t a standard term; “replacement” is the legal phrase. Option D (duplication notice) might imply overlap but lacks regulatory specificity. The study guide likely includes a sample replacement form, stressing its role in LTC sales compliance, confirming C as the correct choice.

Twisting involves misrepresenting or making incomplete comparisons to induce a policyholder to replace an existing policy with one from another insurer, often to the client’s detriment.

Exact Extract (Virginia Unfair Trade Practices Law): “Twisting—making incomplete or misleading comparisons of policies to induce replacement.”

References (Virginia Documents / Study Guide):

— Code of Virginia §38.2-503 (Twisting prohibited)

If the insured fails to repay the full value of loans taken against a life insurance policy, the death benefit is reduced by the outstanding loan balance plus any accrued interest. The insurer can use the loan to pay the policy’s death benefit or any other obligations, but the policy does not become void unless the loan balance exceeds the cash value.