Accident & Health FundamentalsQuestion 18 of 716
A Flexible Spending Account (FSA) used to pay for qualifying medical expenses is best described as:
a.An employee-owned investment account whose balance rolls forward each year and earns interest tax-free for the employee's whole life
b.A federally administered program that pays the Medicare Part B premiums of retired employees and their spouses and dependents
c.A pre-tax employee salary-reduction account subject to a 'use-it-or-lose-it' rule, with only limited carryovers allowed
d.An account funded only by the employer that the employee may roll over from year to year without any limit
Explanation
A health FSA established under an IRC §125 cafeteria plan is funded with pre-tax employee salary reductions (and any employer contributions). Unused balances are generally forfeited at year-end, although plans may allow a limited carryover or grace period.
Law Reference: 26 U.S.C. §125 (cafeteria plans/FSA)This topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
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Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)