Final Exam Review Flashcards
1
Q
Some insurers offer a fixed, deferred annuity that allows the annuity owner to participate in the growth of the stock market and also provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term. Such an annuity is called a(n) ___.
A. Life income with guaranteed payments annuity
B. Equity-indexed annuity
C. Installment refund annuity
D. Variable annuity
A
B
2
Q
Nancy, age 67, plans to retire in 6 months. She would like to receive the highest lifetime monthly income, in which the monthly income she receives is guaranteed. Which of the following annuity / annuity payout options will allow Nancy to accomplish her goal?
A. Fixed life annuity, cash refund
B. Fixed life annuity, no refund
C. Variable annuity, period certain
D. Variable installment refund annuity
A
B
3
Q
Donna, age 50, is single and earns $75,000 annually. She is covered under her employer’s retirement plan. Donna would like to start a traditional IRA and contribute $4,000 this year. Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?
A. Her contribution is fully tax deductible
B. Her contribution is partially tax deductible
C. No portion of the contribution is tax deductible
D. Donna is not eligible to establish a traditional IRA, so no contribution can be made
A
C
4
Q
All of the following are reforms included in the Affordable Care Act EXCEPT:
A. Young adults are permitted to remain on their parents health coverage until age 26
B. Not allowing insurers to rescind health insurance policies if there was an unintentional error on the application
C. Insurers are permitted to use annual and lifetime benefits
D. Insurers must payout at least a specified percentage of premiums in medical claims and medical claims expenses
A
C
5
Q
Which of the following statements is true regarding disability income insurance?
A. The purchase of disability income insurance is not necessary if you are covered under workers compensation
B. Increasing the elimination period reduces the premium for disability income insurance
C. Disability income insurance usually replaces 100% of lost income
D. A uniform definition of disability appears in all disability income policies
A
B
6
Q
Which of the following statements is true regarding Health Savings Accounts (HSAs)?
A. HSA contributions are not tax deductible
B. If money remains in the HSA at the end of the year, it is forfeited to the federal government
C. To establish an HSA and receive favorable tax treatment, you must be covered by a high-deductible health plan
D. Employers cannot contribute to the HSA
A
C
7
Q
All of the following are common exclusions in a medical expense insurance policy EXCEPT
A. Dental care
B. Surgeons’ fees
C. Long-term care
D. Routine eye care
A
B
8
Q
Which of the following statements about the continuation of group health insurance under the COBRA law is true?
A. A continuation of coverage must be made available even if an employee voluntarily terminates employment
B. The length of the continuation of coverage is 90 days
C. The option to continue coverage applies to minor children only, not to adults
D. The employer must pay the entire cost of coverage during the continuation period
A
A
9
Q
All of the following statements concerning group insurance underwriting are correct EXCEPT
A. Benefits should be automatically determined to preclude individual selection of benefits
B. A minimum percentage of eligible employees must participate in the plan
C. It is best to have few people joining or leaving the group
D. Insurance should be incidental to the formation of the group
A
C
10
Q
Shelton Manufacturing Company (SMC) employs over 5,000 workers. All of the company’s operations are conducted in the same city. Shelton’s group health insurance expenditures have increased significantly in recent years. To contain costs, SMC entered into an agreement with Community Hospital (CH) network. Under the agreement, CH will provide services to SMC employees at a discounted rate. SMC will provide a financial incentive for its employees to use CH. Although workers are not required to use CH, the reimbursement rate for care provided by CH is higher than if another hospital is used. What is this type of managed care plan called?
A. Point-of-service plan
B. Health maintenace organization
C. Preferred provider organization
D. Cafeteria plan
A
C
11
Q
A(n) ___ is a periodic payment that continues for a fixed period or for the duration of a designated life or lives.
A
Annuity
12
Q
An annuity provides protection against the risk of living too long, or ___.
A
Excessive longevity
13
Q
The fundamental purpose of an annuity is to ___.
A
provide a lifetime income that cannot be outlived
14
Q
Annuity payments consist of three sources:
A
- Premium payments
- Interest earnings
- Unliquidated principal of annuitants who die early
15
Q
Actuaries use special ___ to calculate annuity premiums because annuitants tend to be healthy individuals.
A
Mortality tables
16
Q
A(n) ___ pays periodic income payments that are guaranteed and fixed in amount.
- The first payment starts one payment interval from the date of purchase
- During the Accumulation Period prior to retirement, premiums are credited with interest
- The Liquidation Period is the period in which funds are paid out, or annuitized
A
Fixed immediate annuity
17
Q
A(n) ___ annuity payout option pays a life income to the annuitant; after the annuitant’s death, payments continue to a beneficiary until they equal the purchase price.
A
Installment Refund
18
Q
A(n) ___ annuity payout option is similar to the installment refund option, but pays the beneficiary a lump sum.
A
Cash Refund
19
Q
A(n) ___ annuity payout option provides periodic payments that are adjusted for inflation.
A
Inflation-Indexed
20
Q
A(n) ___ annuity payout option provides life income which terminates when the last annuitant dies.
A
Joint and Survivor
21
Q
A(n) ___ pays a lifetime income, but the income payments vary depending on common stock prices.
- The purpose is to provide an inflation hedge by maintaining the real purchasing power of the payments
- Premiums are used to purchase Accumulation Units during the period prior to retirement
- At retirement, the accumulation units are converted into Annuity Units
A
Variable Annuity
22
Q
In a variable annuity, a(n) ___ protects the principal against loss due to market declines.
A
Guaranteed Death Benefit
23
Q
In a variable annuity, if the annuitant dies before retirement, the amount paid to the beneficiary will typically be the higher of two amounts:
A
- The amount invested in the contract
- The value of the account at the time of death
24
Q
A Fixed Immediate Annuity pays periodic income payments that are guaranteed and fixed in amount.
- The first payment starts one payment interval from the date of purchase
- A(n) __(1)__ is an annuity purchased with a lump sum
- During the __(2)__ prior to retirement, premiums are credited with interest
- The __(3)__ is the period in which funds are paid out, or annuitized
A
- Single-premium Immediate Annuity
- Accumulation Period
- Liquidation Period
25
A **Variable Annuity** pays a lifetime income, but the income payments vary depending on common stock prices
* The purpose is to provide an inflation hedge by maintaining the real purchasing power of the payments
* Premiums are used to purchase \_\_(1)\_\_ during the period prior to retirement
* At retirement, the accumulation units are converted into \_\_(2)\_\_
1. Accumulation Units
2. Annuity Units
26
Variable annuities contain the following fees and expenses: (4 points)
* Investment management charge
* Administrative charge
* Mortality and expense risk charge
* Surrender charge
27
A(n) ___ is a fixed, deferred annuity that allows the owner to participate in the growth of the stock market and provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term.
Equity-Indexed Annuity
28
A **Equity-Indexed Annuity** is a fixed, deferred annuity that allows the owner to participate in the growth of the stock market and provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term.
1. The ___ is the percent of increase in the stock index that is credited to the contract
2. Some insurers have a(n) ___ rate on the interest rate credited to your annuity
3. Insurers use different ___ to credit excess interest to the annuity
4. Some have a(n) ___ at the end of the index period
1. Participation rate
2. Maximum cap
3. Indexing methods
4. Guaranteed minimum value
29
With the ___ indexing method,
* Interest earnings are calculated based on annual change in stock market
* The Index's starting point is reset annually
* If the stock market decreases during any contract year, the decrease does not have to be recovered before crediting growth in the index during a future year
* This method is also called ratchet method
Annual reset
30
In an equity-indexed annuity, how is guaranteed minimum value calculated?
(Base %)(1+r)n
31
\_\_\_ annuities provide protection against the risk of depleting your financial assets at an advanced age. They are low-cost annuities because there are no cash values or death benefits in the policy.
Longevity
32
An individual annuity purchased from a commercial insurer is a(n) \_\_\_.
* It does not meet IRS code requirements
* It does not qualify for most income tax benefits
* Premiums are not income-tax deductible
* **Invesment income is tax deferred**
Nonqualified Annuity
33
How is the exclusion ratio calculated?
(Investment in contract) / (Expected return)
34
A(n) ___ allows workers with taxable compensation to make annual contributions to a retirement plan up to certain limits and receive favorable income-tax treatment.
Individual Retirement Account (IRA)
35
A(n) ___ IRA allows workers to take a tax deduction for part or all of their IRA contributions.
* The investment income accumulates income-tax free on a tax-deferred basis
* Distributions are taxed as ordinary income
* The participant must have earned income during the year, and must be under age 70.5
* Maximum annual contribution is $5,500 or 100% of taxable compensation (whichever is less)
* A full deduction for IRA contributions is allowed under certain circumstances
Traditional
36
A fully deductible traditional IRA is limited to single taxpayers with modified adjusted gross income of __ or less, and no deduction is allowed if modified adjusted gross income is __ or higher.
$61,000; $ 71,000
37
Besides income, what other situation allows a worker's Traditional IRA contribution to be fully tax deductible?
If the worker is not an active participant in an employer's retirement plan for any part of the year, they can make a fully deductible IRA contribution up to the annual maximum limit
38
Distributions from a traditional IRA before age __ are considered an early withdrawal, and are subject to a 10% tax penalty unless certain conditions apply, e.g., death or disability
59.5
39
A(n) ___ is a tax-free distribution of cash or other property from one retirement plan, which is deposited into another retirement plan.
IRA Rollover
40
A(n) ___ IRA is a type of IRA that provides substantial tax advantages.
* Annual contributions are not tax deductible
* Investment income accumulates income-tax free
* Qualified distributions are not taxable under certain conditions
* Contributions can be made after age 70.5
* Generous income limits
Roth
41
The maximum annual contribution to an IRA is the lesser of two values:
* $5,500
* 100% of taxable compensation
42
Workers who are age __ and over have maximum IRA contributions that are $1,000 higher.
50
43
For married couples filing jointly, a fully deductible traditional IRA is limited to modified adjusted gross incomes of __ or less, and no deduction is allowed if modified adjusted gross income is __ or higher.
$98,000; $118,000
44
The maximum annual contribution to a Roth IRA is limited to single taxpayers with modified adjusted gross income under \_\_, and no contributions are allowed if modified gross income is __ or higher.
$116,000; $131,000
45
For married couples filing jointly, the maximum annual contribution to a Roth IRA is limited to modified adjusted gross incomes under \_\_, and no contributions are allowed if modified adjusted gross income is __ or higher.
$183,000; $193,000
46
The annual contributions to a(n) ___ IRA are not income-tax deductible. However, the investment income accumulates income-tax free, and qualified distributions are not taxable if certain requirements are met.
Roth
47
Taxpayers with incomes that exceed phase-out limits can contribute to a(n) ___ IRA.
Nondeductible
48
An immediate life annuity offers all of the following benefits EXCEPT
A. Simplicity for the purchaser as he or she does not have to manage investment funds.
B. Security for the purchaser as stable lifetime income that cannot be outlived is provided.
C. The principal is safe as the funds are guaranteed by the assets of the insurer.
D. Immediate annuity payments are entirely exempt from federal income tax.
D
49
Which of the following statements regarding the taxation of individual annuities is (are) true?
I. The exclusion ratio is the percentage of the annuity income that is taxable.
II. After the net cost of the annuity has been paid to the annuitant, the total annuity payment is taxable.
II only
50
Which of the following statements about variable annuities is true?
A. The periodic payments received by the annuitant are fixed.
B. Variable annuities typically provide a guaranteed death benefit payable to a beneficiary if the annuitant dies prior to retirement.
C. Insurers offering variable annuities are not permitted to charge administrative fees.
D. Although the value of annuity units fluctuates, accumulation units have a fixed value.
B
51
Which of the following statements is (are) true regarding the Roth IRA?
I. Roth IRA contributions are tax deductible.
II. Roth IRA investment income accumulates income-tax free.
II only
52
All of the following statements about traditional and Roth IRAs are true EXCEPT
A. Traditional IRA contributions may be fully, partially, or not income tax deductible.
B. Qualified distributions from Roth IRAs are received income tax free.
C. Contributions to Roth IRAs are made with after-tax dollars.
D. Traditional IRAs are exempt from the penalty tax on premature distributions.
D
53
Donna, age 50, is single and earns $40,000 annually. She is covered under her employer's retirement plan. Donna would like to start a traditional IRA and contribute $4,000 this year. Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution?
A. Her contribution is fully tax deductible.
B. Her contribution is partially tax deductible.
C. No portion of the contribution is tax deductible.
D. Donna is not eligible to establish a traditional IRA, so no contribution can be made.
A
54
The US Healthcare delivery system has 4 major problems:
* Rising healthcare expenditures
* Large number of uninsured in the population
* Considerable waste and inefficiency
* Harmful insurer practices
55
What are the top 6 provisions that the Affordable Care Act made to the US healthcare system?
* Lifetime limits and annual limits prohibited
* Preexisting conditions prohibited
* Rescission of insurance policies prohibited
* Retention of coverage until age 26
* Guaranteed access to health insurance
* Minimum medical loss ratio
56
The ACA expanded Medicaid to include adults with incomes up to \_\_% of the federal poverty level.
138
57
A(n) ___ health insurance policy is one in which the insurer guarantees to renew the policy at each anniversary date.
Guaranteed Renewable
58
Under a(n) ___ health insurance policy, the insurer cannot change, cancel, or refuse to renew the policy as long as premiums are paid on time. The insurer also cannot change the premiums or the rate structure specified in the policy.
Noncancellable
59
Under a(n) ___ health insurance policy, the policyholder can renew the policy until a specified age. The insurer has the right to decline renewal under conditions specified in the contract.
Conditionally Renewable
60
Some health insurance policies are ___ and expire at the end of the protection period. The policyholder does not have the contractual right to renew the policy.
Nonrenewable
61
A(n) ___ is a type of aggregate deductible that is found in basic medical expense and major medical insurance contracts.
Calendar-Year Deductible
62
A(n) ___ is a stated period of time at the beginning of a loss during which no insurance benefits are paid.
Elimination Period
63
Health insurance policies frequently contain a(n) \_\_\_, which requires the insured to pay a specified percentage of covered medical expenses in excess of the deductible.
Coinsurance Clause
64
What are the two purposes of coinsurance in health insurance?
* To reduce premiums
* To prevent over-utilization of policy benefits
65
Assume that an insured has covered medical expenses of $x, the calendar year deductible is $y and the coinsurance percentage is z%. How much would the insured pay?
(x - y)(z / 100) coinsurance + y deductible
66
\_\_\_ provides income payments when the insured is unable to work because of sickness or injury. Income payments are typically limited to 60-70 percent of gross earnings.
Disability-Income Insurance
67
\_\_\_ means that you can perform some but not all of the duties of your occupation.
Partial Disability
68
\_\_\_ applies when you are gainfully employed and not totally disabled but, solely because of sickness or injury, your loss of income is at least 15 percent of your prior income.
Residual Disability
69
A(n) ___ is paid to an insured whose earned income is reduced because of an accident or sickness.
Pro rata disability benefit
70
Jeff is a salesperson who earns $x monthly.
* He is seriously injured in an auto accident
* When he returns to work, he is able only to earn $y monthly
* His disability income policy pays a monthly benefit of $z for a total disability
How much would Jeff receive monthly from his disability income policy as a residual disability benefit?
Residual disability benefit = [(x - y) / x] \* z
71
In disability income insurance, the ___ is the length of time that disability payments are payable after the elimination period is met.
Benefit period
72
Most disability income insurance policies automatically include a(n) \_\_\_, which means that if the insured is totally disabled for 90 days, the future premiums will be waived as long as the insured remains disabled.
Waiver-of-premium provision
73
In disability income insurance, under a(n) \_\_\_, the insurer periodicially adjusts benefits for increases in the cost of living.
Cost-of-living Rider
74
In disability income insurance, a(n) ___ pays an additional amount if the policyholder is turned down for SS disability benefits.
Social Security rider
75
In disability income insurance, a(n) ___ refunds part or all of the premiums if the policyholder's claim experience is favorable.
Return of premiums rider
76
Beginning in 2014, the Affordable Care Act requires that most U.S. citizens and legal residents have qualifying health insurance or pay a financial penalty.
This provision of the Affordable Care Act is known as the:
A. affordable health insurance exchange option.
B. public option.
C. individual mandate.
D. premium subsidy option.
C
77
Individual major medical insurance is characterized by which of the following?
A. narrow range of benefits
B. no lifetime benefit limits
C. no exclusions
D. first-dollar coverage
B
78
Prior to passage of the Affordable Care Act, insurers could go back to the date a health insurance policy became effective and render the policy void due to a clerical error.
This practice, which is prohibited under the Affordable Care Act except in cases of fraud or intentional misrepresentation of a material fact, is called
A. estoppel.
B. retention.
C. rescission.
D. reformation.
C
79
Which of the following statements about individual disability income policies that use a two-part definition of total disability is (are) true?
I. During the initial period of disability, the insured must be unable to perform the duties of any gainful occupation.
II. After the initial period of disability, the insured must be unable to perform the duties of any occupation for which he or she is reasonably fitted by education, training, and experience.
II only
80
All of the following statements about the tax treatment of Health Savings Accounts (HSAs) are true EXCEPT
A. Contributions to a qualified HSA are tax deductible.
B. Distributions from a qualified HSA used to fund medical expenses are taxable income.
C. Investment income in a qualified HSA accumulates income tax free.
D. Distributions from a qualified HSA prior to age 65 for nonmedical purposes are subject to a 10 percent penalty tax.
B
81
Greta purchased a long-term care policy. Greta's eligibility for benefits under the policy may be triggered by
A. how long premiums have been paid.
B. inability to perform activities of daily living.
C. continuous hospitalization for at least 60 days.
D. eligibility for Medicare benefits.
B
82
\_\_\_ are employer-sponsored benefits, other than wages, that enhance the economic security of individuals and families that are partly or fully paid for by employers.
Employee Benefits
83
Group insurance differs from individual insurance in several ways: (4 points)
* Many people are covered under one contract; a **Master contract** is formed between the group and the insurer
* Coverage usually costs less than comparable insurance purchased individually
* Individual evidence of insurability is usually not required
* Experience rating is used
84
Group plans also make available \_\_\_, whereby employees can purchase additional amounts without evidence of insurability.
Supplemental term insurance
85
Most group plans also provide \_\_\_, which pays additional benefits if the employee dies in an accident or incurs certain types of bodily injuries. The full benefit, called the **Principal Sum**, is paid if the employee dies in an accident.
Group accidental death and dismemberment insurance
86
In a(n) ___ group life insurance plan, the employer pays the entire cost.
Noncontributory
87
In a(n) ___ group life insurance plan, the employer and the employee share the cost.
Contributory
88
Some group life insurance plans require employees to satisfy a(n) ___ of 1-3 months before they can participate in the plan.
Probationary period
89
\_\_\_ is an employee benefit that pays the cost of hospital care, physicians' and surgeons' fees, and related medical expenses.
Group medical expense insurance
90
\_\_\_ is a generic name for medical expense plans that provide covered services to the members in a cost-effective manner.
Managed care
91
A(n) ___ is an organized system of health care that provides comprehensive medical services to its members on a prepaid basis.
* Negotiates rates and enters into agreements with hospitals and physicians to provide medical services
* Broad, comprehensive medical services are provided
* Choice of providers is limited
* Cost-sharing provisions are imposed
Health Maintenance Organizations (HMO)
92
HMOs place heavy emphasis on controlling costs
* Providers may receive a(n) \_\_(1)\_\_, which is a fixed annual payment for each plan member regardless of the frequency or type of service provided.
* A(n) \_\_(2)\_\_ is a primary care physician who determines whether medical care from a specialist is necessary
1. Capitation fee
2. Gatekeeper physician
93
A(n) ___ is a plan that contracts with healthcare providers to provide certain medical services to members at discounted fees.
* Providers are typically paid on a fee-for-service basis
* Patients are not required to use the provider, but the deductible and co-payments are lower if they do
* If the provider's actual charge exceeds the negotiated fee, the provider absorbs the cost
* Most do not use a gatekeeper physician
Preferred Provider Organization (PPO)
94
Which of the following statements about group insurance underwriting principles is true?
A. Employees should be required to remit premiums directly to the insurance company.
B. The average age of the group should ideally increase over time.
C. A group should be formed for the specific purpose of obtaining insurance.
D. The employer should ideally share in the cost of a group insurance plan.
D
95
All of the following are reasons why employers self-insure medical expense plans EXCEPT
A. to reduce certain costs, such as premium taxes and commissions.
B. to provide mandated state benefits.
C. to retain funds until needed to pay claims.
D. to eliminate the need to comply with separate state laws.
B
96
Under older group medical expense plans, physicians were paid a fee for each covered service and were reimbursed on the basis of reasonable and customary charges, up to a maximum limit. These older group medical expense plans were called
A. service medical plans.
B. managed care plans.
C. point-of-service plans.
D. indemnity plans.
D
97
An HMO physician who determines if medical care from a specialist is necessary is called a(n)
A. capitator.
B. internist.
C. network facilitator.
D. gatekeeper.
D
98
Which of the following statements about preferred provider organization (PPO) health plans is (are) true?
I. A PPO plan contracts with health care providers to provide medical services to members at reduced fees.
II. Plan members are given a financial incentive to use PPO providers rather than other providers.
Both I and II
99
Most group health insurance plans have adopted the coordination-of-benefits rules developed by the National Association of Insurance Commissioners. Under these rules, if a dependent child is covered by both of the health insurance plans of the child's married parents, which health plan is primary for the child's medical expenses?
A. always the mother's plan
B. always the father's plan
C. the plan of the parent whose birthday occurs first in the calendar year
D. the plan of the parent who works for the larger employer, based on number of total employees
C
100
\_\_\_ forms, drafted by the Insurance Services Office (ISO) are widely used in the United States.
* They are designed for the owner-occupants of family dwellings
* A policy can be used to cover the dwelling, other structures, personal property, additional living expenses, personal liability claims, and medical payments to others
* Six forms are available
Homeowners Insurance
101
A(n) ___ is the broad homeowners form that covers the dwelling, other structures, and personal property on a named perils basis.
HO-2
102
A(n) ___ is a special homeowners form that covers the dwelling and other structures on a risk-of-direct-physical loss basis.
* All direct physical losses are covered except those losses specifically excluded
* Personal property is covered on a named perils basis
HO-3
103
A(n) ___ is a homeowners form that covers a tenant's personal property on a named perils basis.
HO-4
104
A(n) ___ is a comprehensive homeowners form that provides open perils coverage ("all-risks coverage") on the dwelling, other structures and personal property.
* All direct physical losses are covered except those losses specifically excluded
HO-5
105
A(n) ___ is a unit owners homeowners form that covers personal property on a named perils basis.
* A minimum of $5,000 of insurance is also provided on the condominium unit that covers improvements and additions
HO-6
106
A(n) ___ is a modified coverage homeowners form designed for older homes.
* Dwelling and other structures are based on the amount required to repair or replace using common construction materials and methods.
HO-8
107
The following persons are considered "insureds" under the HO-3 policy: (4 points)
* Named insured and spouse
* Resident relatives
* Other persons under age 21
* Full-time student away from home
108
Section II coverage of HO-3 also includes ___ and ___ as "insureds."
* Any person legally responsible for covered animals or watercraft
* With respect to a motor vehicle covered by the policy, persons employed by the named insured
109
Homeowners ___ covers the dwelling on the residence premises and any structure attached to the dwelling.
* Materials intended for construction are included
* The coverage specifically excludes land
Coverage A
110
Homeowners ___ insures other structures on the residence premises.
* Includes a detached garage, tool shed, etc.
* Structures that are rented out or used for a business are excluded
* The amount of coverage is based on the amount of insurance in Coverage A
Coverage B
111
Homeowners ___ insures personal property owned or used by an insured.
* Personal property is covered anywhere in the world, both on and off the premises
* The amount of coverage is 50% of coverage A, but can be increased if desired
* Coverage for personal property at another residence, such as a vacation home, is limited to 10% of ___ or $1000, whichever is greater
* Certain types of personal property have maximum dollar limits on the amount paid for any loss
Coverage C
112
The amount of coverage under Coverage C is \_% of Coverage A, but can be increased if desired.
50
113
Under Coverage C, coverage for personal property at another residence, such as a vacation home, is limited to \_% of Coverage C or $1000, whichever is greater.
10
114
Under Section I of homeowners insurance, a(n) ___ can be used to insure certain personal property for a specific amount.
Schedule
115
Homeowners ___ provides protection when the residence premises cannot be used because of a covered loss.
* Coverage is 30% of Coverage A
* **Additonal Living Expense** is the increase in living expenses actually incurred by the insured to maintain the family's standard of living.
* The policy pays the **Fair Rental Value** for that part of the residence that is rented to others, but is not fit to live in
* Coverage applies if the home is not damaged, but a civil authority prohibits the insured from using the premises.
Coverage D
116
Homeowners Coverage D is \_% of Coverage A
30
117
Additional coverages in ___ of homeowners insurance include:
* Removal of debris following an insured peril
* Reasonable repairs to protect the property from further damage
* Trees, shrubs, and plants, for a limited set of perils
* Fire department service charge
* Removal of property that is endangered by an insured peril
* Unauthorized use of credit card, electronic fund transfer card or access device, forgery and counterfeit money
Section I
118
Specific perils excluded in ___ of homeowners insurance include:
* Collapse
* Freezing
* Fences, pavement, patio, and similar structures
* Dwelling under construction
* Vandalism and malicious mischief
* Mold, fungus, and dry rot
* Wear and tear, mechanical breakdown
Section I
119
Under section I of homeowners insurance, personal property is insured for a direct physical loss if it is caused by one of the perils listed in the policy.
* The peril must be the ___ of the loss.
* Named perils include fire, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism, falling objects, etc.
Proximate Cause
120
Under section I of homeowners insurance, losses to personal property are paid on the basis of \_\_\_.
Actual cash value
121
Under homeowners insurance, losses to the dwelling and other structures are paid on the basis of \_\_\_.
Replacement cost with no deduction for depreciation
122
If the dwelling is injured for less than 80% of the replacement cost, the insured receives the larger of:
* Actual cash value of that part of the building damaged, or
* (Amt of insurance carried) / (80% of replacement cost) \* (Loss)
123
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Megan carelessly spills a can of paint while painting the bedroom. A wall to wall carpet that is part of the bedroom is badly damaged and must be replaced.
Covered. Wall-to-wall carpeting is part of the dwelling. Since the loss is not excluded, it is covered.
124
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Water backs up from a clogged drainpipe, floods the basement and damages some books stored in a box.
Not covered. Damage from water that backs up through sewers or drains is excluded.
125
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Megan's house is totally destroyed by a tornado. Her valuable Doberman Pinscher dog is killed by the tornado.
The dwelling is covered for windstorm. Animals are excluded under personal property.
126
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
During a frost warning, smudge pots from a nearby orange grove emit dense smoke that settles on Megan's freshly painted house.
Not covered. Smoke damage from agricultural smudging or industrial operations is excluded.
127
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Megan is on vacation, and a thief breaks into her hotel room and steals a suitcase containing jewelry, money, clothes and a valuable stamp collection just given to her by her grandfather.
Covered. However, there is a $1500 limit on the theft of jewelry, $200 limit on cash and a $1500 limit on the stamp collection.
128
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Megan's son is playing baseball in the yard. A line drive shatters the living room window.
Covered. Since the loss is not excluded, it is covered. Glass breakage is covered.
129
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
A garbage truck accidentally backs into the garage door and damages it.
Covered. Vehicle damage to the dwelling is covered.
130
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Defective wiring causes a fire in the attic. Damage to the house is extensive. Megan is forced to move into a furnished apartment for three months while the house is being built.
Covered. The additional living expense is covered under Coverage D. The fire loss to the dwelling is covered under Coverage A.
131
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
Megan's son, age 20, is attending college but is home for Christmas. A high definition television is stolen from his dormitory room during his absence.
Covered. As long as the son had been in the room any time during the 60-day period before the loss, the theft is covered.
132
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
During the winter, heavy snow damages part of the front lawn, and the sod must be replaced.
Not covered. Trees, plants, shrubs, and lawns are covered only for a specified number of named perils. Snow damage to the lawn is not a covered peril.
133
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
During a windstorm, an elm tree in Megan's yard is blown over.
The windstorm loss of the elm tree is not covered. Windstorm is not a listed peril with respect to trees, plants, and shrubs.
134
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
The home is badly damaged in a severe earthquake. As a result of the earthquake, the front lawn has a 3-foot crack and is now uneven.
Not covered. Earthquake damage is specifically excluded.
135
Megan has her home and personal property insured under an unendorsed Homeowners 3 policy. Indicate whether the following loss is covered. If the loss is not covered, explain why.
An icemaker in the refrigerator breaks and water seeps into the flooring and the carpeting causing considerable damage to the dwelling.
Covered. Water seepage from an appliance is covered.
136
How much is jewelry covered for under an HO-3?
$1,500
137
How much are collections covered for under an HO-3?
$200
138
If an insured has a disagreement with his/her insurer concerning the value of personal property losses, how would the losses be resolved under an HO-3 policy?
1. Insured and insurer each select appraiser
2. Two appraisers select umpire
3. If appraisers cannot agree on umpire, judge appoints one
4. An agreement by any two of the three (appraisers and umpire) is then binding on all parties
139
Under an HO-3, what is the limit for business personal property used in a home business on the premises?
$2,500
140
Which of the following statements is (are) true regarding renters insurance?
I. Renters insurance is needed if you rent a house, but is not needed if you rent an apartment.
II. The ISO renter's policy provides open perils ("all-risks") coverage on the insured's personal property.
Neither I nor II
141
Persons insured under Section I of the Homeowners 3 policy include which of the following?
I. A spouse of the named insured if living in the same household
II. The named insured's children who are under age 24 and who are full-time college students
Both I and II
142
All of the following are covered under the dwelling coverage (Coverage A) of the Homeowners 3 policy EXCEPT
A. any structure attached to the dwelling.
B. the land on which the insured dwelling is located.
C. materials and supplies intended for alteration or repair of the dwelling.
D. materials and supplies intended for construction of a detached garage.
B
143
All of the following losses are subject to special limits of liability under the Homeowners 3 policy EXCEPT
A. theft of firearms.
B. destruction by fire of property used for business purposes.
C. storm damage to a boat at a marina.
D. furniture destroyed by a fire.
D
144
Which of the following property is covered under the personal property coverage (Coverage C) of the Homeowners 3 policy?
A. a pet dog owned by the named insured
B. a bicycle owned by a foster child living with the named insured
C. a motor vehicle owned by the named insured
D. a stamp collection insured under a separate policy
B
145
All of the following are additional coverages under Section I of the Homeowners 3 policy EXCEPT
A. the reasonable expenses of removing debris after an insured loss.
B. fire department service charges for which the insured is liable by contract or agreement.
C. damage to trees and shrubs caused by a windstorm.
D. losses incurred from the unauthorized use of a stolen credit card.
C
146
Which of the following losses to a dwelling would be covered under an unendorsed Homeowners 3 policy?
A. smoke damage resulting from agricultural operations of a neighboring farmer
B. damage to the structure caused by a flash flood
C. damage to the structure caused by the weight of heavy snow on the roof
D. damage to a floor caused by water backing up through a sewer pipe
A
147
\_\_\_ insurance protects the name insured and family members against legal liability arising out of their personal acts.
* Insurer pays amount for which the insured is found legally liable, up to the policy limits
* The insurer also pays defense costs
* Coverage is found in Section II of the Homeowners policy
Personal Liability
148
Homeowners insurance ___ protects the insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured's negligence.
* The coverage is broad and based on legal liability
* The policy contains a per-occurrence limit
* An **Occurrence** is defined as an accident which results in bodily injury or property damage during the policy period
* The insurer provides a legal defense, even if the suit is frivolous or fraudulent
Coverage E
149
A(n) ___ is defined as an accident which results in bodily injury or property damage during the policy period.
Occurrence
150
Homeowners insurance ___ covers medical payments to others.
* Pays the reasonable medical expenses of another person who is accidentally injured while on an insured location, by the activities of an insured, by a residence employee, or by an animal owned by or cared for by an insured.
* The limit is $1,000, but it can be increased.
* Medical payments to others is not based on legal liability
* In contrast, personal liability coverage (Coverage E) requires the insured to be legally liable for coverage to apply
Coverage F
151
What is the limit for HO-3 Coverage F (Medical Payments to Others)?
$1,000
152
To trigger personal liability coverage, the suit or claim must:
(2 points)
* Allege bodily injury or property damage
* Be caused by an occurrence to which coverage applies
153
The HO-3 automatically includes several additional coverages:
1. ___ (e.g., court costs, attorney fees) are covered in addition to the policy limits for liability damages
2. The insurer pays any ___ incurred for bodily injury covered under the policy
3. ___ pays up to $1,000 per occurrence for property damage caused by an insured, with some exclusions
4. Certain loss assessments are covered up to $\_\_
1. Claims expenses
2. First-aid expenses
3. Damage to property of others
4. $1,000
154
A(n) ___ endorsement provides for an annual pro rata increase in the limits of insurance in the Section I coverages.
Inflation-Guard
155
A(n) ___ endorsement covers earthquakes, landslides, volcanic eruptions, and earth movement.
Earthquake Coverage
156
When a(n) ___ endorsement is added to the Homeowners policy, claims are paid on the basis of replacement cost with no deduction for depreciation.
Personal property replacement cost loss settlement
157
The ___ endorsement provides additional coverage for nine classes of property (jewelry, furs, cameras, musical instruments, silverware, golfer's equipment, fine arts, postage stamps, and rare and current coins) and the insurer agrees to pay the stated amount for a scheduled item if a total loss occurs.
Scheduled personal property
158
A(n) ___ endorsement is used to extend liability coverage to legal liability arising out of personal injury, e.g., false arrest, slander.
Personal injury
159
A(n) ___ endorsement provides liability and medical payments coverage on any inboard or inboard-outdrive powered watercraft; sailing vessels 26 feet or more in length; and watercraft powered by one or more outboard motors exceeding 25 total horsepower.
Watercraft
160
A(n) ___ endorsement covers both business property and legal liability arising out of a home-based business.
Home business insurance coverage
161
A(n) ___ endorsement reimburses crime victims for the cost of restoring their identity and cleaning up their credit report.
Identity Theft
162
A(n) ___ report shows up to 7 years of information on property claims, including the date of loss, type of loss, and amounts paid. Insurers will use this report when determining the cost of homeowners insurance.
Comprehensive Loss Underwriting Exchange (CLUE)
163
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
The named insured's dog bites a neighbor's child and also chews up the neighbor's coat.
Covered. A suit or claim because of animals is covered.
164
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
A son living at home accidentally injures another player while playing softball.
Covered. The medical expense of the injured player would be covered under Coverage F.
165
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
A guest slips on a waxed kitchen floor and breaks an arm.
Covered. Persons injured on the premises are covered. The medical expenses are covered under Coverage F, and if a lawsuit ensues, there is coverage under Coverage E.
166
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
A neighbor's child falls off the swing in the named insured's yard and breaks an arm.
Covered. The child's medical expenses are covered under Coverage F
167
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
The named insured accidentally falls on an icy sidewalk and breaks a leg.
Not covered. Medical expenses incurred by the named insured and resident household members (other than a resident employee) are not covered.
168
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
While driving to the supermarket, the named insured injures another motorist with the automobile.
Not covered. Liability arising out of the negligent operation of an automobile is excluded.
169
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
A ward of the court, age 10, in the care of the insured, deliberately breaks a neighbor's window.
Covered. Property damage to others is covered up to $1,000 without having to prove negligence. If the damage is deliberately caused by someone age 13 or older, the coverage does not apply.
170
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
The named insured paints houses for a living. A can of paint spills onto a customer's roof and discolors it.
Not covered. Business activities are excluded.
171
Indicate whether the following loss is covered under section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answer.
The named insured borrows a camera, and it is stolen from a motel room while the insured is on vacation.
Not covered under Section II. The theft, however, is covered under Section I.
172
Jerry and Lois Gower own and operate the Gower Painting Company. The couple is insured under a Homeowners 3 policy with no special endorsements. The policy has a $100,000 per occurrence limit for personal liability and a $1000 limit for medical payments to others.
For the following situation, indicate to what extent, if any, the loss is covered under Section II of their homeowners policy.
Jerry left a ladder standing against a house that he was painting. When Jerry went to lunch, a child, age 7, climbed the ladder and was seriously injured when the ladder collapsed. Jerry is sued by the child's parents for $200,000.
Not covered. This is a business liability loss, which is excluded under a homeowners policy.
173
Jerry and Lois Gower own and operate the Gower Painting Company. The couple is insured under a Homeowners 3 policy with no special endorsements. The policy has a $100,000 per occurrence limit for personal liability and a $1000 limit for medical payments to others.
For each of the following situation, indicate to what extent, if any, the loss is covered under Section II of their homeowners policy.
Lois accidentally fell off the roof of a house that she was painting and injured her leg. She incurred medical expenses of $3,000.
Not covered. Medical payments to others coverage applies only to other persons, not to an insured. The medical bills of Lois are not covered under her homeowners policy.
174
Jerry and Lois Gower own and operate the Gower Painting Company. The couple is insured under a Homeowners 3 policy with no special endorsements. The policy has a $100,000 per occurrence limit for personal liability and a $1000 limit for medical payments to others.
For each of the following situation, indicate to what extent, if any, the loss is covered under Section II of their homeowners policy.
The couple's daughter, age 22, attends college at a large university located in the southeast. While playing softball, Jennifer made a hard slide into second base and accidentally injured the opposing player. The injured player claims that Jennifer intended to injure her and sues Jennifer for $50,000.
Covered. Jennifer, age 22, is a resident family member who is attending college. She is an insured under Jerry's homeowners policy. The suit is covered.
175
Jerry and Lois Gower own and operate the Gower Painting Company. The couple is insured under a Homeowners 3 policy with no special endorsements. The policy has a $100,000 per occurrence limit for personal liability and a $1000 limit for medical payments to others.
For each of the following situation, indicate to what extent, if any, the loss is covered under Section II of their homeowners policy.
Lois has a pet basset hound, Huey. Huey is a friendly, docile dog and loves people. Lois carelessly left the backyard gate open and Huey escaped from the fenced yard. A neighbor tried to catch Huey and Huey bit him on the leg and hand. The neighbor incurred medical bills of $800. Lois is later sued by the neighbor for $50,000 when the dog bite became infected and did not heal.
Covered. The neighbor's medical expenses are covered under medical payments to others coverage. The ensuing lawsuit is covered under personal liability insurance.
176
Jerry and Lois Gower own and operate the Gower Painting Company. The couple is insured under a Homeowners 3 policy with no special endorsements. The policy has a $100,000 per occurrence limit for personal liability and a $1000 limit for medical payments to others.
For each of the following situation, indicate to what extent, if any, the loss is covered under Section II of their homeowners policy.
Jerry is playing golf with a friend whio is riding in a golf cart that he is operating. The cart overturned when Jerry carelessly drove the cart off the fairway and hit a tree. Jerry's friend is seriously injured and sues Jerry for $150,000.
Covered. Personal liability insurance applies to a golf cart used for golfing purposes or on a golfing facility. However, the maximum amount paid is $100,000.
