Types of Health Policies — practice questions

12.3% of the exam ≈16 real questions 19 free questions here

Disability income, medical expense, HMOs and PPOs, HSAs, Medicare supplements, group coverage, COBRA and long-term care: about 16 of the 130 scored questions, the largest general domain.

Where people lose points

• Employer-paid disability benefits are taxable to the employee; individually paid ones are not.
• An HSA requires a qualifying high-deductible plan.
• COBRA is 18 months for job loss and 36 months for dependents after divorce or death.
• Medicare supplements fill Original Medicare's gaps; Medicare Advantage replaces it.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on types of health policies.

1. A surgeon injures her hand and can no longer perform surgery, but she accepts a full-time position teaching at a medical school. Under which definition of total disability would her individual disability income policy pay full benefits?

   • AAny occupation
   • BOwn occupationCorrect
   • CPresumptive disability
   • DPartial disability

   Why: The own-occupation definition pays benefits when the insured cannot perform the substantial duties of his or her OWN occupation, even if the insured works in a different field. The any-occupation definition is stricter: it would deny benefits because she can work in another occupation suited to her education and training. Presumptive disability applies only to specified losses such as sight, speech, or limbs.

   Reference Texas outline #124401, general section V (Types of policies)

2. Under a key employee disability income policy, which party receives the policy benefits when the key employee becomes disabled?

   • AThe business that employs the key personCorrect
   • BThe key employee
   • CThe key employee's spouse or estate
   • DThe benefits are split equally between the business and the employee

   Why: In key employee (key person) disability insurance, the business is the applicant, premium payer, and beneficiary, while the key employee is the insured. Benefits reimburse the business for lost revenue and the cost of finding and training a replacement. The employee receives nothing directly under this policy — that is what makes choice B the classic misconception.

   Reference Texas outline #124401, general section V (Types of policies)

3. An insured with a $100,000 AD&D policy loses the sight in one eye in a covered accident. What will the policy most likely pay?

   • AThe full $100,000 principal sum stated on the policy’s schedule page
   • BA capital sum equal to a stated percentage of the principal sumCorrect
   • CNothing — an AD&D policy pays only for accidental death
   • DA monthly disability income benefit while he recovers

   Why: Loss of sight in one eye is a single dismemberment loss, so the policy pays the capital sum — commonly 50% of the principal sum. The full principal sum (A) is reserved for accidental death or specified multiple losses. AD&D covers dismemberment as well as death, so C is wrong, and it never pays income benefits (D).

   Reference Texas outline #124401, general section V (Types of policies)

4. Which statement about a health reimbursement arrangement (HRA) is correct?

   • AIt is funded solely by the employer; employees may not contributeCorrect
   • BIt is funded through employee pre-tax salary reductions
   • CIt must always be paired with a high-deductible health plan
   • DUnused amounts must be paid to the employee in cash at year end

   Why: An HRA is an employer-funded account that reimburses employees tax free for qualified medical expenses; employees cannot contribute to it. Employee salary-reduction funding (B) describes an FSA, and the HDHP pairing requirement (C) applies to HSAs. Unused HRA amounts may carry forward only if the employer's plan allows it — they are never cashed out.

   Reference Texas outline #124401, general section V (Types of policies)

5. A policy pays the insured a fixed dollar amount for each day of hospital confinement, paid directly to the insured regardless of the actual medical expenses incurred or any other coverage in force. This is a:

   • ABasic hospital expense policy
   • BMajor medical policy
   • CCritical illness policy
   • DHospital indemnity policyCorrect

   Why: A hospital indemnity (hospital confinement indemnity) policy pays a flat per-day benefit directly to the insured during hospitalization, independent of actual charges — it is an indemnity supplement, not expense reimbursement. A basic hospital expense policy (A) reimburses actual room-and-board charges up to a limit, and a critical illness policy (C) pays a lump sum upon diagnosis of a specified illness such as cancer, heart attack, or stroke.

   Reference Texas outline #124401, general section V (Types of policies)

6. An insurer's underwriting guidelines limit individual disability income coverage to 60% of an applicant's gross EARNED income. The applicant reports a $90,000 annual salary plus $12,000 of annual dividend and interest income. What is the largest monthly benefit the insurer will approve?

   • A$4,500Correct
   • B$5,100
   • C$6,000
   • D$7,500

   Why: Only earned income counts: $90,000 x 60% = $54,000 per year, or $4,500 per month. Choice B wrongly adds the $12,000 of investment income ($102,000 x 60% / 12 = $5,100), which continues during a disability and therefore is excluded from the replacement calculation. Insurers cap replacement below 100% so the insured retains a financial incentive to return to work.

   Reference Texas outline #124401, general section V (Types of policies)

7. An insured becomes totally disabled on March 1 under a disability income policy with a 60-day elimination period. Benefits accrue monthly and are paid at the end of each benefit month. When should the insured expect the FIRST benefit payment?

   • AApproximately March 31
   • BApproximately April 30
   • CApproximately May 30Correct
   • DApproximately June 30

   Why: The 60-day elimination period runs from March 1 to about April 29, and no benefits accrue during it. Benefits then accrue for a full month and are paid in arrears, so the first check arrives near the end of May. Choice B is the classic error: April 30 is only the day the elimination period ends, at which point nothing has yet been earned.

   Reference Texas outline #124401, general section V (Types of policies)

8. An insured worries that the $4,000 monthly benefit on her disability income policy will lose purchasing power if she is disabled for 15 years. Which rider directly addresses that concern?

   • AGuaranteed insurability (future increase option) rider
   • BWaiver of premium rider
   • CSocial insurance supplement rider
   • DCost-of-living adjustment (COLA) riderCorrect

   Why: A COLA rider increases the monthly benefit already on claim, usually annually and tied to an index or a flat percentage, so long-duration claims keep pace with inflation. The guaranteed insurability rider is the closest distractor but works only while the insured is healthy and WORKING — it lets her buy additional coverage without new underwriting; it does nothing once a claim is in progress.

   Reference Texas outline #124401, general section V (Types of policies)

9. Compared with an individual disability income policy, the benefit period of a typical business overhead expense policy is:

   • AShorter, usually 12 to 24 monthsCorrect
   • BLonger, usually running to age 65 or 67
   • CIdentical, because both use the same benefit schedule
   • DUnlimited, as long as the business stays open

   Why: BOE is a bridge product: it keeps the doors open for the 12 to 24 months an owner realistically needs to recover, hire a replacement, or sell or close the business. Choice B describes individual disability income coverage, which is meant to replace personal income for as long as the disability lasts, commonly to age 65 or 67.

   Reference Texas outline #124401, general section V (Types of policies)

10. A 58-year-old is covered by a qualifying family high-deductible health plan for all of 2026 and has no other disqualifying coverage. What is the maximum total amount she may contribute to her health savings account for 2026?

    • A$4,400
    • B$8,750
    • C$9,750Correct
    • D$10,750

    Why: For 2026 the HSA family contribution limit is $8,750, and an accountholder who is age 55 or older may add a $1,000 catch-up contribution, for a total of $9,750. Choice B is the trap for candidates who forget the catch-up, and choice A is the 2026 self-only limit of $4,400. Note that the catch-up starts at age 55 for HSAs, not at age 50 as with many retirement plans.

    Reference Texas outline #124401, general section V (Types of policies)

Topics inside this domain

• Texas agent licensing: temporary license, appointment and renewal
• Replacing life insurance and annuities in Texas
• Texas HMO rules for the life and health exam

Drill other domains

• Types of Life Policies and Annuities (11.5%)
• Life Policy Riders, Provisions, Options and Exclusions (11.5%)
• Life Application, Underwriting and Policy Delivery (9.2%)
• Retirement and Other Life Insurance Concepts (6.2%)
• Health Policy Provisions, Clauses and Riders (11.5%)
• Social Insurance (4.6%)

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