Pass the Insurance Licensing Life, Accident, and Health NY-Life-Accident-and-Health Questions and answers with CertsForce

A fixed annuity provides payments (or credited interest during accumulation) based on a guaranteed rate and/or guaranteed payout set by the insurer. Because the payment amount is generally level once annuitized (unless an inflation rider or increasing-payment option is selected), the key drawback is inflation risk : over time, rising prices can reduce the purchasing power of those fixed payments. In other words, the annuitant may receive the same dollar amount each period, but that amount may buy less in the future.

Option B describes a feature more consistent with variable annuities , where benefits are not guaranteed at a specific level because values depend on investment performance. Option C is also a characteristic of variable annuities (separate account investments and fluctuating returns), not fixed annuities. Option D is not a standard limitation of fixed annuities; payout periods depend on the selected settlement option (life, period certain, joint life, etc.), not an automatic “2 years after death” cap. Therefore, the commonly tested disadvantage of a fixed annuity is the potential erosion of buying power due to inflation.

Thought for a few seconds

The correct answer is A. concealment . In insurance, concealment means an applicant or insured intentionally fails to disclose a material fact that should be made known to the insurer. A material fact is any information that would affect the insurer’s decision to issue the policy, set the premium, or determine the scope of coverage. Because insurers rely on full and truthful disclosure during underwriting, concealment can be treated as a form of misrepresentation and may give the insurer grounds to deny a claim or rescind the policy, depending on the circumstances and applicable law.

The other choices do not match this definition. Estoppel is a legal principle that can prevent a party from asserting a right when its own actions have caused another to rely to their detriment. Remission is not the standard insurance term for withholding information in underwriting. Twisting is an unfair trade practice involving inducing a policyowner to replace existing insurance using misleading comparisons. Since the question asks specifically about intentionally withholding information from an insurer, the correct term is concealment .

A Section 457 Deferred Compensation Plan is a type of retirement savings program established under Section 457 of the Internal Revenue Code. It is primarily designed for employees of state and local governments , including workers employed by states, counties, cities, and municipalities , as well as certain governmental agencies. These plans allow employees to defer a portion of their salary into a retirement account on a pre-tax basis , meaning the contributions are not included in taxable income until the funds are withdrawn, usually during retirement.

Section 457 plans are similar in concept to other tax-deferred retirement plans such as 401(k) or 403(b) plans, but they are specifically intended for public sector employees . One of the distinctive features of a governmental 457 plan is that withdrawals can often be taken without the early withdrawal penalty typically applied before age 59½ , provided the participant separates from service.

Options such as sole proprietorships or religious organizations typically use other retirement arrangements (like SEP, SIMPLE IRA, or 403(b) plans ). Therefore, the correct answer is that Section 457 plans are intended for employees of states, counties, or municipalities .

The correct answer is $39,600 . To determine the insurer’s payment, the deductible and coinsurance provisions must be applied to the total covered medical expenses. First, the insured must pay the $500 deductible . Subtracting this amount from the total covered losses of $50,000 leaves $49,500 of eligible expenses subject to coinsurance.

Under an 80/20 coinsurance arrangement , the insurer pays 80% of the covered expenses and the insured pays 20% . Applying the insurer’s portion to the remaining amount:

80% × $49,500 = $39,600 .

Therefore, the insurer’s payment equals $39,600 , while the insured would pay the deductible plus their coinsurance share. Although the policy mentions a $10,000 out-of-pocket limit , the insured’s cost in this situation (the $500 deductible plus 20% of the remaining expenses) does not exceed that limit , so the limit does not affect the calculation.

Thus, after applying the deductible and coinsurance provisions, the insurer pays $39,600 , making Option B the correct answer.

The correct answer is C. Joint. A joint life insurance policy insures two individuals—most commonly spouses—under one single contract , with the death benefit paid when the first insured person dies . This arrangement is commonly referred to as “first-to-die” coverage . Once the death benefit is paid following the first insured’s death, the policy typically terminates because the contract has fulfilled its purpose. Joint life policies are often used in family financial planning when funds are needed immediately after the first spouse dies to cover expenses such as income replacement, debts, or final expenses.

This differs from survivorship life insurance , also known as second-to-die insurance , where the policy insures two people but the death benefit is paid only after the second insured dies . Survivorship policies are commonly used for estate planning or wealth transfer strategies. The other options are incorrect because dual capacity is not a standard life insurance policy type, and spousal is not the technical term used in life insurance contracts for a first-to-die policy. Therefore, a life insurance policy covering both spouses under one contract with payment at the first death is known as joint life insurance .

The correct answer is C. Gains are taxed only on distribution. One of the major advantages of annuities is their tax-deferred growth . During the accumulation phase , the interest, dividends, or investment gains generated inside the annuity contract are not taxed annually . Instead, taxation is deferred until the policyholder begins taking withdrawals or receiving annuity payments. At that time, the portion of the payment representing earnings or gains becomes taxable as ordinary income. This tax deferral allows the funds inside the annuity to grow more efficiently because earnings can continue to compound without being reduced by yearly taxation.

The other options are incorrect. A is incorrect because annuity earnings are not tax deductible each year. B is also incorrect because earnings are not partially tax-exempt; rather, they are tax-deferred until distribution. D is incorrect because not all distributions are fully taxable. When annuity payments begin, part of each payment represents a return of the owner ' s principal (cost basis) and is not taxed, while only the earnings portion is subject to income tax. Therefore, the favorable tax treatment of annuities is that taxation on gains occurs only when distributions are taken

The correct answer is The cost of insurance is averaged throughout the life of the contract . Level premium term life insurance provides protection for a specified period—such as 10, 20, or 30 years—while keeping the premium amount the same each year during the term period . Even though the insured’s probability of death increases as they age, the premium remains level because the insurer averages the cost of insurance over the entire term of the policy .

In the early years of the policy, the insured is statistically less likely to die, so the premium collected is somewhat higher than the actual cost of protection at that time. In later years, the risk of death increases, but the premium remains unchanged because the earlier excess premiums help offset the higher cost of coverage later in the term. This structure creates stable and predictable premium payments for the policyowner.

The other options are incorrect. Term life insurance does not build cash value , and the benefit amount is not necessarily lower or tied to life expectancy calculations in the manner described. The defining feature is the level premium created by averaging the cost over the policy term .

A disability buy-sell agreement (often funded with disability buyout insurance) is specifically designed to address the business ownership problem created when an owner/partner becomes totally and permanently disabled . The agreement establishes, in advance, the terms under which the non-disabled partner(s) can purchase the disabled partner’s ownership interest , providing an orderly transfer of control and a fair method to determine the buyout price. The insurance component supplies the cash needed to complete the purchase so the remaining partner is not forced to borrow, liquidate assets, or disrupt operations to raise funds. By contrast, long-term disability and employee disability coverage are aimed at replacing personal income for the disabled individual, not transferring ownership interests. Business overhead expense insurance reimburses ongoing fixed business expenses (rent, utilities, certain salaries) during the owner’s disability; it helps keep the business running but does not create a mechanism for one partner to acquire the other partner’s share. Therefore, the provision that enables acquisition of the disabled partner’s interest is the disability buy-sell agreement.

In insurance terminology, the cause of a loss is known as a peril . A peril is the specific event or cause that results in damage, injury, or financial loss. Common examples of perils include fire, theft, accident, illness, disability, or death . In life and health insurance, the insured event—such as death in life insurance or sickness and accidental injury in health insurance—is considered the peril that triggers the insurer’s obligation to pay benefits under the policy. Insurance policies are designed to provide financial protection against losses that result from covered perils.

It is important to distinguish a peril from other related insurance concepts. A hazard is a condition or situation that increases the likelihood or severity of a loss caused by a peril. Hazards are typically categorized as physical hazards (such as icy roads or faulty wiring), moral hazards (dishonesty or fraudulent behavior), and morale hazards (carelessness because of insurance coverage). An exposure refers to the possibility of loss, while risk refers to the uncertainty regarding the occurrence of a loss. Therefore, the term that specifically describes the direct cause of a loss is a peril .