NLHI - Nevada Life and Health Insurance Exam

Question 21: An underwriter classifies hazards. One applicant has a slippery marble staircase, another has a history of filing padded claims, and a third is simply careless because insurance will cover mishaps. The applicant with a dishonest claims history represents which hazard?

A physical hazard

A morale hazard

A moral hazard

A speculative hazard

Question 22: A health insurer explains that its medical expense coverage will restore the insured to the same financial position after a covered loss, but will not pay more than the actual expenses, preventing profit from a claim. Which insurance principle does this reflect?

The principle of valued benefits

The principle of utmost good faith

The principle of subrogation

The principle of indemnity

Question 23: A risk manager lists ways to deal with risk: not engaging in a risky activity at all, keeping the risk and paying losses yourself, lowering the chance or severity of loss, and shifting the risk to an insurer. Purchasing insurance is an example of which method?

Transfer of risk

Avoidance of risk

Retention of risk

Reduction of risk

Question 24: An underwriter evaluates whether a proposed exposure can be insured. She checks that the loss is accidental, definite and measurable, part of a large group of similar exposures, and not catastrophic to the insurer. Which additional characteristic must an insurable risk generally meet?

The loss must be intentional and certain

Calculable loss and affordable premium

The risk must guarantee a profit

The exposures must all be identical individuals

Question 25: A producer performs acts the insurer never spelled out in writing but which are reasonably necessary to carry out the express duties of soliciting and servicing business, such as arranging routine paperwork. This authority the agent needs to do the job is called what?

Express authority

Apparent authority

Implied authority

Fiduciary authority

Question 26: A student learns about an internationally known organization that itself does not issue insurance but instead provides a marketplace where groups of members join together to underwrite risks, each accepting a share. What is this organization best described as?

A single large stock insurer

A federal government insurer

A mutual insurance company

An association marketplace of underwriters

Question 27: Members of the same industry with similar liability exposures form an entity, owned by those members, to write liability coverage for themselves under a federal framework. The arrangement is authorized by federal law. This member-owned insurer writing only liability coverage is known as what?

A risk retention group

A reciprocal insurer

A stock insurer

A fraternal benefit society

Question 28: A producer collects premiums from clients and holds them briefly before remitting them to the insurer. An auditor stresses that the producer must not mix these funds with personal money. This duty to keep premium funds separate reflects what obligation?

A duty of subrogation

An indemnity obligation

A fiduciary duty against commingling

A coinsurance requirement

Question 29: A producer worries about being sued by a client who claims the producer negligently failed to recommend adequate coverage. The producer buys professional liability insurance to protect against such unintentional mistakes. This coverage for professional negligence is commonly called what?

A fidelity bond

Errors and omissions insurance

Directors and officers coverage

A surety bond

Question 30: An applicant seeks life insurance and must show a legitimate stake in the continued life of the insured. The underwriter tests each relationship carefully. Which of the following relationships would generally NOT by itself establish an insurable interest in another person's life?

A spouse insuring the other spouse

A business insuring a key employee

A creditor insuring a debtor

A casual acquaintance with no financial tie

Question 31: A named beneficiary receives the death benefit of a life insurance policy in a single lump sum after the insured dies. The beneficiary asks how the federal income tax treats this payment. How is a lump-sum life insurance death benefit generally taxed?

Received free of federal income tax

Taxed as ordinary income in full

Taxed as a capital gain

Subject to a flat withholding

Question 32: An individual who owns a personal life insurance policy asks the accountant whether the premiums she pays each year can be written off on her federal income tax return. How are personally paid individual life insurance premiums generally treated for income tax?

They are fully deductible each year

They are deductible above a threshold

They are not tax-deductible

They are a refundable tax credit

Question 33: A whole life policyowner notices the policy's cash value has grown over the years. She has not paid tax on that growth while it remained inside the policy. How is the internal growth of life insurance cash value generally treated for income tax?

It is taxed annually as earned

Taxed yearly as a capital gain

It is always fully tax-exempt

It accumulates tax-deferred

Question 34: A policyowner takes a partial withdrawal from a non-MEC life insurance policy. The insurer explains the amounts come out in a particular order for tax purposes, with the portion representing premiums paid coming out first. This ordering rule is known as what?

Last-in, first-out taxation

First-in, first-out taxation

Pro rata taxation

Capital gains taxation

Question 35: An annuity owner under age fifty-nine and a half takes a withdrawal from a deferred annuity during the accumulation phase. The insurer explains that the taxable gain is considered withdrawn first. How are such nonannuitized annuity withdrawals generally taxed?

Gain first, on a last-in, first-out basis

Basis first, on a first-in, first-out basis

Entirely tax-free as return of premium

As a long-term capital gain

Question 36: A beneficiary elects to leave the death benefit with the insurer and receive it over time rather than as a lump sum. The principal portion is income-tax-free, but the earnings paid along with it are treated differently. How is the interest portion taxed?

The interest is also tax-free

The interest is taxed as capital gain

The interest is taxable as income

The entire payment is taxable

Question 37: An insured owns a life policy on his own life and keeps the right to change the beneficiary and borrow against it until his death. For federal estate tax, these retained rights have a consequence. What effect do incidents of ownership at death have?

The proceeds avoid the estate entirely

The proceeds become income-taxable

The policy is automatically voided

Proceeds included in the taxable estate

Question 38: To remove a life policy from his taxable estate, an insured gifts ownership of it to his adult child but dies two years later. A federal rule addresses gifts of life insurance made shortly before death. What is the effect of this three-year rule?

Proceeds are pulled back into the estate

The gift is automatically reversed

The proceeds become income-taxable

The policy lapses on the insured's death

Question 39: An investor buys an existing life insurance policy from its owner for valuable consideration, then keeps paying premiums until the insured dies. A federal tax rule changes how the death benefit is treated in this situation. Under the transfer-for-value rule, what happens?

The death benefit stays entirely tax-free

Part of the death benefit becomes income-taxable

The policy is treated as a gift

The buyer owes estate tax on it

Question 40: A terminally ill insured with a physician's certification accesses part of the policy's death benefit early through an accelerated death benefit provision. She asks how the federal income tax treats this early payment for a terminal illness. How is it generally taxed?