Kentucky Life & Health Insurance Exam — All Questions

In an executive bonus (Section 162) plan, the employer:

• a.Owns the life insurance policy outright and names itself as the beneficiary, while the executive simply agrees to be the insured person
• b.Pays a bonus, deductible to the employer and taxable to the executive, that the executive uses to pay premiums on a policy they own✓
• c.Provides no real benefit to the executive
• d.Cannot deduct any part of the arrangement

In a Section 162 executive bonus plan, the employer pays a deductible bonus (taxable to the executive) and the executive owns the policy and pays its premiums. The employer does not own the policy.

A split-dollar life insurance arrangement is:

• a.An agreement in which an employer and employee share the costs and benefits of a life policy, such as premiums, cash value, and death benefit✓
• b.A type of deferred annuity
• c.A term insurance rider that an employer attaches to the executive's personal life insurance policy in order to provide extra temporary death benefit at a low cost
• d.A government insurance program

Split-dollar is an arrangement between an employer and employee (or two parties) to split the premium costs and policy benefits of a life policy. It is not a government program, annuity, or rider.

Which state agency issues resident life and health insurance producer licenses in Kentucky?

• a.The Kentucky Department of Financial Institutions
• b.The Kentucky Bureau of Insurance
• c.The Kentucky Department of Insurance✓
• d.The Kentucky Insurance Commission

The Kentucky Department of Insurance regulates the business of insurance in Kentucky and licenses producers. It is led by the Insurance Commissioner, who has authority to issue, deny, suspend, and revoke licenses and to enforce the state insurance code. No separate financial-services department or insurance 'commission' handles producer licensing here.

A Kentucky resident who wants to sell both life insurance and health (accident and sickness) insurance typically obtains:

• a.A resident producer license with life and accident & health lines of authority✓
• b.A property and casualty producer license
• c.A surplus lines broker license
• d.Two separate licenses issued by two different state agencies

Kentucky follows the producer-licensing model in which one resident insurance producer license carries the specific lines of authority the applicant qualifies for, such as life and accident & health. Property/casualty and surplus lines are different lines for different products.

Before a licensed Kentucky producer may transact insurance on behalf of a particular insurer, what must generally occur?

• a.Nothing beyond holding a valid license is ever required
• b.The producer must reside in the insurer's home state
• c.The insurer must appoint the producer and file that appointment with the Kentucky Department of Insurance✓
• d.The producer must post a surety bond with the state treasurer

Holding a license lets a person act as a producer, but to represent a specific company the insurer must appoint the producer, notifying the Kentucky Department of Insurance. A producer may hold appointments from several insurers at once; ending the relationship terminates the appointment.

To keep a resident life and health producer license active in Kentucky, a producer generally must:

• a.Do nothing further once the license is first issued
• b.Complete the required continuing education each renewal period and pay the renewal fee✓
• c.Obtain a brand-new license for each insurer represented
• d.Retake the full licensing examination every single year

Kentucky issues licenses for a set term and requires continuing education (including ethics content) each renewal cycle, plus payment of the renewal fee. Letting CE lapse or missing renewal can cause the license to expire, after which reinstatement rules and penalties may apply. Exact hours and fees are set by the Kentucky Department of Insurance and can change.

Kentucky law requires individual life insurance policies to contain a 'free look' (right to examine) provision. This gives the policyowner the right to:

• a.Receive no refund once the policy has been delivered
• b.Return the policy within the stated period (commonly at least 10 days) after delivery for a full premium refund✓
• c.Cancel only within 3 days of delivery
• d.Cancel at any time during the first policy year at no cost

A free-look, or right-to-examine, provision lets the policyowner return a newly delivered individual life policy within a stated window (commonly at least 10 days) for a full premium refund. Replacement transactions and policies sold to seniors often carry a longer review period. The exact number of days is set by state law.

What is the purpose of the Kentucky life and health insurance guaranty association?

• a.To pay certain covered claims, up to statutory limits, if a member insurer becomes insolvent✓
• b.To set the premium rates insurers may charge
• c.To guarantee a minimum investment return on every policy
• d.To advertise member insurers to the public

The guaranty association is a safety net that pays covered claims up to statutory dollar limits when a member insurer becomes insolvent. Importantly, Kentucky law prohibits producers and insurers from using the association's existence as an inducement to buy insurance or in advertising; it is a backstop, not a selling point.

When a Kentucky producer recommends replacing a client's existing life insurance policy with a new one, the producer must:

• a.Wait a full year before the new policy can be issued
• b.Follow the state's replacement rules, including giving the required replacement notices and fair, complete comparisons✓
• c.Never disclose the replacement to either insurer involved
• d.Guarantee in writing that the new policy will always be cheaper

Replacement is regulated to protect consumers from losing value when switching policies. The producer must provide the required replacement notice, give the client accurate and complete comparisons, and follow notification steps so the existing insurer can respond. Misleading a client into replacing coverage can constitute twisting.

A Kentucky producer offers a prospect part of the producer's commission as cash back if the prospect buys a life policy. Under Kentucky law this is:

• a.Permitted for term life policies only
• b.Required to be reported but otherwise legal
• c.Prohibited as unlawful rebating✓
• d.Permitted if the producer discloses it in writing

Rebating, offering any part of the premium or commission or other valuable consideration as an inducement to buy, is a prohibited unfair trade practice. It is barred because it can lead to unfair discrimination between policyholders who are otherwise in the same class.

Using misrepresentation or incomplete comparisons to persuade a policyholder to drop an existing policy and buy a new one is best described as:

• a.Twisting, which is a prohibited unfair practice✓
• b.Rebating, which is fully permitted
• c.Churning, which is fully permitted
• d.Field underwriting, which is required

Twisting is the use of misrepresentation to induce a policyholder to lapse, surrender, or replace an existing policy in favor of a new one, usually with a different insurer. Churning is a similar abuse using the same insurer's policies. Both are prohibited unfair practices.

Premiums that a Kentucky producer collects from clients on behalf of an insurer:

• a.May be invested by the producer for extra return before remittance
• b.Are held in a fiduciary capacity and must be remitted to the insurer, not commingled or used personally✓
• c.Can be kept indefinitely as a security deposit
• d.Become the producer's personal income the moment they are collected

Collected premiums belong to the insurer or the client, not the producer. The producer holds them in a fiduciary capacity and must account for and remit them properly. Commingling premiums with personal funds or misappropriating them is grounds for discipline and can be a criminal offense.