Insurance Planning

Question 1

inland marine insurance covers all of the following

Answer 1

An inland marine insurance is a category of insurance that protects against property losses to goods in transit.

Question 2

ocean marine insurance

Answer 2

Covers The hull of the ship

Question 3

Direct recognition programs are best described as

Answer 3

Any amount of cash that is removed from the policy is reflected in a decrease in the amount of dividends and interest paid on that policy.

Question 4

on-forfeiture rights of policyholders guarantee that there will be a

Answer 4

Non-forfeiture rights (or provisions) arrange an orderly legal structure to assure monies paid on an insurance policy are not simply absorbed by the company without recourse in the event that an insured decides to terminate coverage. Two other such provisions include “reduced paid-up” and “extended term.”

Question 5

definition of disability: Modified Any Occupation

Answer 5

The policy which insures an individual when “the insured is unable to perform the duties pertaining to any gainful occupation for which they are suited by education, experience, or training”

Question 6

definition of disability: Any Occupation

Answer 6

you are employable even in the severest disabilities

Question 7

definition of disability :Split Definition

Answer 7

uses own occupation to begin with and moves toward modified any occupation. This allows for training in a new field.

Question 8

definition of disability: Loss of Income.

Answer 8

avoids having to define disability

Question 9

Skilled nursing care

Answer 9

Under the definition of long term care, the highest level of care provision which calls for services where residents are seen regularly by physicians

Question 10

Intermediate care

Answer 10

Under the definition of long term care, the highest level of care provision which calls for services, but not seen with as much regularity by a physician (not daily)

Question 11

institutional care

Answer 11

Skilled nursing care.

Intermediate care

Question 12

declaration section of a policy

Answer 12

The insured’s name.

Question 13

the insuring agreement

Answer 13

What the insurer agrees to do

Question 14

the coverage section

Answer 14

The perils against which the insurer will provide coverage

Question 15

policy exclusions

Answer 15

The exclusions to coverage

Question 16

split-dollar life insurance

Answer 16

1) Stock redemption plans can be funded by split-dollar life insurance.
2) The insurance premium of a split-dollar life insurance contract is generally divided between the employee and the employer.
3) The insurance death benefit of a split-dollar life insurance policy is generally divided between the employee and the employer.
4) Only the portion of benefit in the policy that is attributable to the actual contributions of the company are subject to the claims of company creditors

Question 17

dividend options available to policyholders of a participating whole life insurance policy

Answer 17

Paid-up additions.

Accumulate at interest

Question 18

non-forfeiture options

Answer 18

Reduced paid-up insurance.

Extended term

Question 19

physical hazards, moral hazards and morale hazards

Answer 19

a condition which increases the frequency or severity of loss
all of which increase the condition which increases the frequency or severity of loss of a loss

Question 20

Perils

Answer 20

the proximate cause of a loss.

Question 21

Contributory negligence

Answer 21

According to common law, if both parties are to blame in a given accident, each is guilty and may not collect against the other even if the defendant was 90% to blame and the plaintiff only 10% to blame.

Question 22

When discussing disability and life insurance with your client, you ask about her risk exposures she encounters in her life. She seemed more concerned about the risk of an airline accident than about an automobile accident, even though there is a much higher probability of an auto accident. This can be explained by the:

Answer 22

Illusion of control bias

Because they are in control of driving the car, they tend to overestimate their ability to control the outcome.

Question 23

mandatory benefits that must be offered by Medicaid programs

Answer 23

Home Health Services.
Outpatient and Inpatient Hospital Services.
Transportation to Medical Care.
Physician Services.

All of the listed services are mandatory Medicaid services in the states who participate in the Medicaid program.

Question 24

Stop-loss.

Answer 24

A stop-loss is used by insurance companies to limit the amount of liability an individual will be responsible for

Question 25

Which of the following is a requirement of a tax-qualified long-term care insurance policy?

A. The policy cannot offer a nonforfeiture option.

B. The policy cannot contain a cash surrender value.

C. The policy must be noncancelable.

D. The benefit must be offered on a reimbursement basis, rather than on a per diem basis.

Answer 25

The correct answer is B.

A tax-qualified long-term care policy cannot offer a cash surrender value.

A is incorrect. A nonforfeiture option can be offered in a qualified long-term care policy. C is incorrect. A qualified long-term care policy must be guaranteed renewable. D is incorrect. A qualified long-term care policy can provide benefits on either a per diem basis or a reimbursement basis.

Question 26

COBRA

Answer 26

COBRA does not apply to companies with less than 20 employees

Question 27

David recently purchased an individual disability income insurance policy. The policy contains a nonoccupational clause, meaning:

A. Benefits payable to David from the disability policy will be offset by workers’ compensation benefits received.

B. Benefits payable from the disability policy will be based on a percentage of David’s lost income.

C. If David unsuccessfully attempts to return to work after suffering a disability, another elimination period will be required.

D. Premiums on the policy will be waived if David is terminated by his employer.

Answer 27

The correct answer is A.

B is incorrect. This is the definition of a residual disability clause.

C is incorrect. Recurrent disability clauses are used in this situation.

D is incorrect. This is not a provision in a disability policy.

Question 28

An advantage of a heath savings account (HSA) over a flexible spending account (FSA) is that an:

A. HSA can be used with any type of health insurance plan, while an FSA can only be used with a high-deductible health insurance plan.

B. HSA contribution made through payroll deduction is exempt from Social Security (FICA) taxes, while an FSA contribution is subject to Social Security taxes.

C. HSA allows for the payment of long-term care insurance premiums with pre-tax dollars, while an FSA cannot be used for long-term care insurance.

D. HSA can be used for both medical expenses and child care expenses, whereas an FSA is only allowed for medical expenses.

Answer 28

The correct answer is C.

HSAs can be used to pay long term care insurance premiums, subject to limits based on age, which are published by the IRS and are adjusted annually. An HSA is an account established to pay for qualified medical expenses, including qualified long term care costs and long term care insurance premiums. Contributions and withdrawals are tax-free for qualified expenses.

A is incorrect. The opposite is true. HSAs can only be used with high-deductible health insurance plans. B is incorrect. An HSA contribution made through payroll deduction is exempt from Social Security (FICA) taxes. However, FSA contributions are also exempt from Social Security tax. Therefore, this is not an advantage of an HSA over an FSA. D is incorrect. The FSA can be used for both medical expenses and child care expenses, whereas the HSA can only be used for medical expenses.

Question 29

Felix stops paying premiums on his whole life policy. What can he do with the cash value?

Answer 29

Buy term insurance with a face value equal to the face value of the original policy.

Question 30

long-term care insurance in a cafeteria plan

Answer 30

Long-term care insurance is NOT allowed in a cafeteria plan.

Question 31

Susan is covered under her employer’s major medical expense plan. The plan has a $500 deductible and an 80% coinsurance clause on the next $6,000 of coverage. She becomes sick and incurs total medical bills of $10,750. What is the amount that Susan will be required to pay?

A. $1,700.

B. $2,150.

C. $6,500.

D. $10,750.

Answer 31

The correct answer is A.

Susan will be required to pay the $500 deductible. Of the remaining $10,250 of expenses incurred, $6,000 is subject to the 80% coinsurance provision, meaning Susan will pay 20% of the cost. The remaining expenses will be fully paid for by the employer’s plan.

Susan’s total costs: Deductible = $500 Coinsurance (20% x $6,000) = $1,200 Total paid by Susan = $1,700

Question 32

If a qualified long-term care policy pays a daily benefit to the insured that exceeds the insured’s actual long-term care expenses, what are the income tax consequences of this benefit?

A. The entire benefit will be income tax free to the insured.

B. Amounts received exceeding the actual long-term care expenses will be taxable to the insured.

C. Amounts received over a prescribed, indexed amount will be taxable to the insured.

D. The entire benefit will be taxable to the insured.

Answer 32

The correct answer is C.

Under HIPAA, if a long-term care policy pays a daily benefit, the benefit will be taxable to the insured if it exceeds a threshold amount. This amount is indexed for inflation each year.

Question 33

Which of the following life insurance transactions would result in the death benefit being subject to income tax under the transfer-for-value rule?

A. Kerri’s irrevocable life insurance trust purchases a new universal life policy with Kerri as the insured and her grandchildren as beneficiaries.

B. Danny sells an existing $300,000 whole life insurance policy on his life to his former business partner for $60,000. The policy had a gift tax value of $45,000 at the time of the sale.

C. Ross buys an 8-year-old $700,000 policy on his life from Mike, his brother-in-law and former business associate, in return for its $110,000 gift tax value. Ross names his wife Anne as beneficiary of the policy.

D. Kate sells her son a $100,000 policy on her life for $1,000. At the time of the sale, the policy had a gift tax value of $4,000 and the mother had paid net premiums of $5,000.

Answer 33

The correct answer is B.

A is incorrect. Since the ILIT purchased a new insurance policy, this does not represent a transfer-for value. C is incorrect. The transfer of a policy to the insured represents an exception to the transfer for value rule. Therefore, the proceeds will remain income-tax free to Anne. D is incorrect. This represents a “part gift part sale.” There has been a gift of $3,000 ($4,000 value of the policy less $1,000 paid by the son), and a sale for $1,000 of a policy worth $4,000. In this example, the transaction will be within the “carryover basis” exception of the transfer-for-value rule, because Kate’s $5,000 basis was greater than the $1,000 she received (so there was no gain or adjustment to her basis by the son), and the gift value is greater than the consideration. Where the transferor’s basis is GREATER than the consideration received, the transferee carries over the transferor’s basis. Here, the son’s basis (for purposes of determining gain or loss on subsequent policy transactions) will be the basis he can carry over from that of his mother’s, i.e., $5,000. So, in spite of the valuable consideration paid by the son, he will receive the proceeds income-tax free.

Question 34

HMO

Answer 34

The HMO model under which the subscribers have the greatest flexibility is:

The IPA model.
The IPA (Individual Practice Association) allows the greatest flexibility among HMO coverages.
Is a type of HMO organization that is made up of physicians who have their own office location

The group model of the HMO:
Is an arrangement that is sometimes known as the network model.

staff model
Is a corporation and medical staff members including doctors, nurses and clerical staff are employees of the HMO.

ALL HMOs employ gatekeepers.
Has gatekeeper within the structure of this model.

Question 35

RISK

Answer 35

Low Frequency High Frequency
Low Severity Retention Reduction. Non-Insurance Transfer
High Severity Insurance Avoidance (Catastrophic risk)

Question 36

aleatory contract
indemnity. 
adverse selection. 
unilateral contract.
adhesion

Answer 36

indemnity - Life insurance is designed to make one whole.

adverse selection - Those who need this contract most will try to buy it.

unilateral contract - Only one party is legally obligated to perform. The insurance contract is said to be a one-sided contract.

aleatory contract - One party pays more than the other party. The insurance contract is an agreement affected by chance occurring when the involved parties pay an unequal number of dollars.

adhesion - The terms of the contract are those written and set forth by one of the parties and agreed to and accepted in their entirety by the other party.

Question 37

Life insurance Policy
the insuring agreement
the coverage section
policy exclusions.
declaration section

Answer 37

the insuring agreement - What the insurer agrees to do.

the coverage section - The perils against which the insurer will provide coverage.

policy exclusions - The exclusions to coverage

declaration section - The insured’s name.

Question 38

HO-1
HO-2
HO-3
HO-4
HO-5
HO-6

Answer 38

HO-1 is almost non-existent basic coverage.
HO-2 named perils coverage
HO-5 is an endorsement to HO-3 coverage.
HO-6 is condominium owner coverage.
HO-4 is renter’s coverage.

Question 39

Medicare

Skilled nursing

Answer 39

Skilled nursing
Days 1–20: $0 for each benefit period- Medicare 100%

Days 21–100: $176 coinsurance per day of each benefit period. - Medicare pays The rest X-176 = Y

Days 101 and beyond: all costs. Medicare dont pay anymore

Medicare does not cover foreign travel. Medicare supplement policy apply in case of emergencies

Question 40

Structured settlement

Personal injuries and Physical sickness

Answer 40

Payments are excludable from income- Income tax free

It is subject to creditors

remainder of interest in the award is included in Gross estate