PSI Insurance Exam 2 — Questions and Answers
Question 1: Which type of life insurance policy builds cash value and provides permanent coverage?
- Term life
- Whole life (Correct answer)
- Group life
- Credit life
Correct answer: Whole life
Whole life insurance provides lifelong coverage and accumulates cash value over time, unlike term which expires.
Question 2: An insured's home is destroyed by fire. The insurer pays the cost to rebuild it with new materials of like kind and quality. This is called:
- Actual cash value
- Market value
- Replacement cost (Correct answer)
- Agreed value
Correct answer: Replacement cost
Replacement cost coverage pays to repair or replace damaged property without deducting for depreciation.
Question 3: Under the coordination of benefits provision, when a child is covered by both parents' health plans, which plan pays first?
- The plan of the parent whose birthday falls later in the year
- The plan of the parent whose birthday falls first in the year (Correct answer)
- The mother's plan always pays first
- The father's plan always pays first
Correct answer: The plan of the parent whose birthday falls first in the year
The birthday rule states the plan of the parent whose birthday (month and day) comes first in the calendar year is primary.
Question 4: A surety bond in which a business owner is bonded against dishonest acts of employees is called a:
- Performance bond
- Fidelity bond (Correct answer)
- License bond
- Court bond
Correct answer: Fidelity bond
A fidelity bond protects employers from losses caused by dishonest or fraudulent acts of their employees.
Question 5: Which provision in a disability income policy requires the insured to be under a physician's care to receive benefits?
- Elimination period
- Residual benefit
- Physician care clause (Correct answer)
- Own-occupation definition
Correct answer: Physician care clause
The physician care clause stipulates that the insured must be under regular care of a licensed physician to qualify for disability benefits.
Question 6: An annuity that begins making payments immediately after a lump-sum premium is paid is called a(n):
- Deferred annuity
- Variable annuity
- Immediate annuity (Correct answer)
- Flexible annuity
Correct answer: Immediate annuity
An immediate annuity starts income payments within one payment period (usually one month) after the single premium is paid.
Question 7: Under the Fair Credit Reporting Act, an applicant who is denied insurance based on a consumer report must be:
- Refunded their application fee
- Notified and given the reporting agency's contact information (Correct answer)
- Provided a copy of the report automatically
- Offered coverage at a higher premium instead
Correct answer: Notified and given the reporting agency's contact information
When adverse action is taken based on a consumer report, the insurer must notify the applicant and identify the credit reporting agency used.
PSI Insurance Exam 2
Which type of life insurance policy builds cash value and provides permanent coverage?