Types of Life Insurance Policies

Correct

The answer is A: Yes, both FIA and IUL are insurance products, not securities

Both Fixed Indexed Annuities (FIA) and Indexed Universal Life (IUL) are insurance products, not securities, and neither requires a securities license. Although their interest crediting is LINKED to an index, the policy itself does not directly invest in the market. The insurer credits interest using formulas with caps, floors, and participation rates. Therefore, no securities registration is needed. Her life license covers both products; for annuities, Texas also requires the one-time four-credit annuity course and the insurer's product training (Insurance Code §1115.056). This contrasts sharply with Variable Life and VUL, which DO require a securities license because the cash value is directly invested in separate accounts.

Source: Insurance Code §1115.056

Correct

The answer is A: Within 31 days of termination

Under Texas Insurance Code §1131.110, an employee whose group life coverage ends because employment ends may get an individual policy without evidence of insurability by applying and paying the first premium within 31 days after employment terminates. The individual policy may be any form the insurer customarily issues other than term (typically whole life), with premiums based on the insured's ATTAINED AGE at conversion. The 31-day window and attained-age pricing are two of the most heavily tested facts about group conversion.

Source: Insurance Code §1131.110

Correct

The answer is D: 75%

For a group life policy issued to a Texas city or other public employer, a contributory plan (employees pay part of the premium) may take effect only if at least 75% of eligible employees elect to contribute, not counting anyone the insurer turns down for unsatisfactory evidence of insurability (Insurance Code §1131.304(b)). The minimum guards against adverse selection by making sure a broad cross-section enrolls, not just those with health concerns. A private employer's noncontributory plan, where employees pay nothing, must insure all eligible employees (§1131.204(c)). Texas no longer sets a participation minimum for a single private employer's contributory plan; that rule was repealed in 2005.

Source: Insurance Code §1131.304(b) · Insurance Code §1131.204(c)

Correct

The answer is A: 100% of eligible employees

A Texas group life policy issued to an employer, under which employees pay no part of the premium, must insure all eligible employees, except any whose evidence of insurability the insurer finds unsatisfactory (Insurance Code §1131.204(c)). Because employees pay nothing, there is no reason for anyone to decline, and covering everyone removes the adverse selection that voluntary enrollment would invite. Texas no longer sets a participation minimum for a private employer's contributory plan. The 75% contributory rule survives only for certain other groups, such as a city's employees (§1131.304(b)).

Source: Insurance Code §1131.204(c) · Insurance Code §1131.304(b)

Correct

The answer is A: The insured may convert to an individual policy without proof of insurability

The conversion privilege applies not only to terminated employees but also to insureds whose group coverage ends because the EMPLOYER terminates the master policy without replacement. When the master policy ends, Texas gives this right only to an insured covered under it for at least five years, and the policy may cap the new individual policy at $2,000 (Insurance Code §1131.111). The insured has 31 days to convert to an individual permanent policy without proof of insurability, with premiums based on attained age. This protects insureds from losing coverage due to events outside their control.

Source: Insurance Code §1131.111