Insurance Review Questions Flashcards
What are conditions that increase either the frequency of severity of loss called? A. Risks B. Perils C. Hazards D. Retention
C By definition
Which of the following is an element of an insurable risk?
A. The loss must not be fortuitous.
B. The loss must be catastrophic.
C. There must be a sufficiently large number of heterogeneous exposure units to make losses reasonably predictable.
D. The loss produced by the risk must be definite and measurable.
D - Answer C uses heterogeneous rather than homogeneous.
What do methods to control losses include? I. To diversify the losses II. To retain the losses III. To transfer the losses IV. To avoid the losses V. To reduce the losses A. All of the above B. II, IV, V C. II, III D. III, IV, V
A
Which of the following correctly reflect insurance contract characteristics?
I. Probability affecting pricing
II. Reducing the loss by having a large pool of people share in the financial losses suffered by members of the pool
III. Transferring of risk from a group to an individual
IV. Speculating as to Joss probability
A. All of the above
B. I, II
C. II, III, IV
D. II
E. I
B - The underwriter uses a morbidity of a mortality table (or similar tables) in the process of selecting and classifying exposures (probabilities). Answer II uses the principle of large numbers.
Why would a very large company use a self-insurance program?
A. To reduce insurance risks
B. To reduce cost associated with commercial insurance
C. To reduce income taxes
D. To increase profits
B - Self-insurance does not reduce insurance risks. It could reduce income taxes or increase profits (depending on the claims). Although Answer D is arguable in certain circumstances as it may increase profits, Answer B is the better answer.
Stop-loss coverage is most likely to be used by what type of company to partially self-insure its employee medical Insurance program?
A. Only large companies
B. Medium-to-large companies
C. Companies with as little as 100 employees
C - A small company could self-insure employee claims to $250,000. Claims above $250,000 in aggregate would be paid by an insurance company. Claims under $250,000 in aggregate would be financed by the employee, employer contributions, and potentially reduced health insurance premium costs. The dollar amount ($250,000) is just used to justify the answer. It could be $100,000 to $1,000,000. The word partially is bolded.
Which of the following is an example of a hazard?
A. One cars hits another car
B. A home burns to the ground after being struck by lightning
C. Ownership of a home
D. Owning a home on the Gulf of Mexico
D - Answers A and B are perils, and Answer C is a risk. Other examples of a hazard are the type of construction or the occupancy of a building.
Which of the following statements concerning the various methods of handling risk is incorrect?
A. Avoidance: A parent refuses to give permission for a child to participate in a field trip.
B. Retention: A parent raises the deductibles on his automobile insurance when his teenager begins to drive the car.
C. Reduction: A homeowner increases the height of a fence surrounding his swimming pool.
D. Diversification: A condo association installs floodlights in its parking lot.
E. Transfer: A homeowner requires a surety bond from his/her contractor to guarantee the completion date of his/her remodeling project.
D - Installing floodlights in the parking lot is an example of risk reduction. It is incorrect. The others are correct.
Which of the following are elements of an insurable risk? I. The loss must be inevitable. II. The loss must be catastrophic. III. The loss must be fortuitous. IV. The loss must be accidental. A. All of the above B. I, III, IV C. I, IV D. III, IV
D - Although death is inevitable, this element of risk is insurable. However, if the loss were inevitable, the element of risk would not be present.
Jane's car is damaged due to an accident in which she was not at fault. Jane forces her carrier to provide her with a new car. Her carrier then takes over Jane's rights to file a claim under which of the following? A. Negligence per se B. Collateral source rule C. Absolute liability D. Subrogation
D - When her carrier provides her with a new car, she is indemnified (made whole). The carrier would take over her legal rights.
In an insurance contract, which term refers to the legally binding arrangement that explains the basic promise of the insurance company? A. The declarations B. The definitions C. The insuring agreement D. The exclusions E. The conditions
C - In this section, the insurance company promises to pay for the loss if the loss should result from the perils covered.
In an insurance contract, where do you find the factual statements identifying the specific person, property, or activity being insured? A. The declarations B. The application C. The conditions D. The amendments E. The definitions
A - The declarations also give descriptive information about the insurance being provided.
A company can purchase and own a life insurance policy in all the following circumstances except which of the following?
A. Key person
B. Buy-sell
C. Deferred compensation arrangement for a key person
D. Dependent of a key person
D - No insurable interest exists on the dependent of an employee.
Which of the following are the most important criteria for selecting an insurer? I. Carrier represented by brokers, not agents II. Policy types offered III. A.M. Best rating IV. History of the company A. All of the above B. I, II, III C. II, III D. III E. I, IV
C - Answers I and V are not factors in deciding whether to select an insurer.
Which answer best matches a legal term to an example of that term?
A. Intentional tort: negligence
B. Attractive nuisance: dangerous pets
C. Absolute liability: babysitting
D. Negligence: backing into another car while parking
D
A life insurance policy that pays dividends is which of the following? A. Guaranteed renewable policy B. Participating policy C. Flexible premium policy D. Non-participating policy
B - Participating life policies pay dividends.
Using a capital retention calculation, how much life insurance should the client purchase to meet his survivor's yearly income needs ($65,000) so that it will increase with inflation of 6%? HINT: There are only two numbers given. A. $1,083,333 B. $1,148,333 C. $650, 000 D. $715,000
B - $65,000 Ö 6% = $1,083,333 Begin \+ 65,000 $1,148,333 NOTE: If there is no time variable it is not a HP type question. Method shown in Insurance Lesson 2. However, inflation is used in lieu of return.
An alligator cage was knocked over by a hurricane. The alligator escaped and injured one neighbor, frightened several others, and did considerable damage to a neighbor’s dogs. Under these circumstances, which of the following statements concerning the responsibility of the alligator owner is (are) correct?
I. The court would recognize the events as an act of God and not hold the owner of the alligator responsible for the ensuing escape of the alligator or the resulting damage.
II. The court would recognize the owner of the alligator as having absolute liability.
III. Since the owner of the alligator did not have a ‘last clear chance’ to avoid the accident, that owner is not responsible.
A. I
B. II
C. III
D. I, III
E. None of the statements are correct.
B - Answers A and C do not avoid absolute liability.
Jan is comparing two life insurance contracts. One agent said that after ten years the cash value will exceed the premiums paid. The other agent gave her a Best Report. What information should Jan obtain to make a better decision?
A. Whether the policy is participating or non-participating
B. A cost-benefit analysis
C. A Standard & Poor’s Report
D. A third proposal
B - Although Answers A, B, and C are important, Answer B will allow Jan to compare the contacts.
Which of the following is true about policies written by a participating insurance company?
A. They always pay dividends to their policyholders.
B. They overcharge for premiums due.
C. They are owned by stockholders.
D. They participate with stockholders.
B - This is the best answer. Answer A is wrong because of the word ‘always.’ If the company loses money, it is not required to pay a dividend.
Ken, a financial planner, is away on vacation. His para planner, Sue, gives advice to one of Ken’s clients. Sue’s information causes the client to lose money. Can Ken be held responsible?
A. No, he was on vacation.
B. No, he did not give the advice.
C. Yes, Ken can be held responsible under strict liability.
D. Yes, Ken can be held responsible under respondeat superior.
D - He has vicarious liability.
Which of the following is not a negligent situation?
A. Babysitting for a family member
B. Keeping of wild animals
C. Backing into another car while parking
D. Not screening or fencing around a swimming pool
A - Babysitting by itself is not a negligent situation. Answer B is absolute liability. Answer C is a collision. Answer D is attractive nuisance.
Which of the following is not one of the sources of information used during the underwriting process? A. Information from the broker B. Cost-benefit analysis C. Physical examinations D. Investigations Insurance Planning Quiz - Lesson 2
B - The other answers are correct.
Insurance Planning Quiz - Lesson 3
Lloyd purchased a small house that he uses as an office building for $200,000. Its replacement cost is
$150,000. Because of the location, the carrier required 90% coinsurance. Lloyd insured the building for
$120,000. Recently, he had a small electrical fire that caused $5,000 of smoke and other damage. Using the formula method, how much of the claim did the carrier pay if his deductible was $500?
A. $500,000
B. $3,250.00
C. $3,500.00
D. $3,944.44
E. $4,000.00
D - [$120,000 Ö $135,000* x $5,000] - $500 = $3,944.44
*The replacement cost is $150,000, but the coinsurance is 90%. Therefore, the insurance coverage should be $135,000. The insurance carrier will pay $4,445.44 less the deductible.
John and Helen insured their home under an HO-2 policy. John and Helen upgraded their coverage to an HO- 3. The HO-3 (special form - all risk of physical loss except those specifically excluded) with no endorsements includes which of the following perils? I. Hazards II. Intentional loss III. Flood IV. Earthquake V. Vandalism A. None of the above B. I C. I, II D. III, IV E. V
E - Intentional loss, floods, and earthquakes are normal exclusions. Explosions would be covered. (Remember WHARVES Vandalism). A peril is a cause of loss. A hazard is a condition that may create or increase the chance of a loss arising from a given peril.
Which of the following is a characteristic of an HO-4 policy?
A. It provides basic coverage on personal property.
B. It excludes medical payments to others.
C. It is a policy for condo owners.
D. It excludes coverage on structures.
D - It has broad form coverage on personal property. The policy includes medical payments. The policy is for renters, not condo owners.
Homeowners Section II coverage includes which of the following? I. Dwelling II. Liability III. Personal property IV. Medical payments V. Loss of use A. I, III, V B. II, III C. II, IV D. III, IV
C - The question is asking about Section II coverage.
Which of the following vehicles are covered under a father's PAP? I. A new car purchased last week II. A car rented while on vacation III. A pickup truck used in business IV. A car owned by a son on a separate insurance policy A. All of the above B. I, II, IV C. I, II D. III
C - The van would have to be covered under a commercial policy not on a personal auto policy (PAP).
A workers' compensation claim falls under which kind of liability? A. Strict B. Absolute C. General D. Contributory negligence E. Assumption of risk
B - Common law defenses for employers against injured workers include Answers D and E. Absolute liability holds the employer liable for most work-related injuries and diseases.
Which of the following is/are homeowner policy exclusions? I. Earthquake II. Sinkhole/home damaged III. Flood IV. Carelessness by an insured A. All of the above B. I, II, IV C. II, III D. I, III
D - Sinkhole is covered because the home is damaged. Intentional losses committed by an insured are specifically excluded. Carelessness is not an intentional loss. EXAMPLE: The person, while driving a car, didn’t watch the car in front of him or her. As a result the person hit the car in front of him or her. The carrier will pay the claim.
Which of the following is excluded under an auto policy? A. Earthquake B. Flood C. Falling objects D. Wear and tear
D - Under the auto policy, earthquakes, floods, and falling objects are covered. Normal wear and tear is not covered.
Which of the following is true?
A. Damage to an attached garage is covered under Coverage A in an HO-2 policy, but damage to a detached garage is protected under Coverage B in an HO-3 policy.
B. An HO-2 policy covers damages to the insured 1’s residence against ‘broad form perils’ including intentional loss.
C. In an HO-2 policy, personal property of the insured is covered against ‘broad form perils’, but in an HO-3 policy personal property of the insured is covered against ‘open form perils.’
D. The principal difference between the HO-2 and the HO-3 is that coverage of the dwelling and other structures is more comprehensive in the HO-2 policy.
A - Answer A must be read carefully. Answer B is wrong because intentional loss is excluded. Answer C is wrong because both the HO-2 and HO-3 policies provide ‘broad form perils’ for personal property. Answer D is wrong because the HO-3 policy offers better coverage with ‘open perils’ coverage.
John and Helen are considering buying a ‘rental’ condo on the beach in Florida. They are concerned about condo assessments due to building storm damage. Which type of homeowners policy should they buy?
A. HO-5 with loss assessment coverage
B. HO-3 with HO-15 rider with Section II loss assessment
C. HO-4 with loss assessment coverage
D. HO-6 with loss assessment coverage
D - The proper policy is an HO-6. Loss assessment is additional coverage.
Bill Yates was involved in a not-at-fault auto accident. He was hurt, and his car was damaged. A hit-and- run vehicle left the accident before Bill could get the driver's name, number, or license. Under which parts of his auto policy (he has A, B, C, and D coverage) can he collect? I. Bodily injury/property damage II. Medical payments III. Uninsured motorist IV. Collision V. Other than collision A. I, II, III B. II, III, IV C. II, V D. III, IV E. IV
B - Medical payments and collision apply. Answer III protects him when he has no one to sue. Bill must file a claim against his own insurer to collect under the uninsured motorist provision. Basically, he sues himself. This presumes the hit-and-run vehicle/operator cannot be identified. Item I is incorrect; Coverage A would apply if Bill were at fault and if the other party were injured or his/her property were damaged.
Jane has a $1 million umbrella policy with a requirement that the underlying automobile liability policy has limits of $250,000 per person. However, Jane only has coverage of $50,000. If a legal judgment of
$700,000 is obtained against Jane, how much will the umbrella pay?
A. $50,000
B. $250,000
C. $450,000
D. $500,000
E. $650,000
C - The question only asks about the umbrella. $700,000 - $250,000 (required limit) = $450,000. Her auto policy would pay $50,000 then she would pay $200,000 and the umbrella would pay the difference.
Please review umbrella information if you are having any problems with this question.
Which of the following is true about umbrella liability insurance coverage?
I. It provides excess coverage when the limits of the insured’s basic liability coverage are adequate.
II. It provides excess coverage when the limits of the insured’s basic liability coverage are inadequate.
III. It provides broader coverage than basic underlying policies.
A. I, II, III
B. I, III
C. II, III
D. I, II
A - The material shows that the umbrella even works when the client has inadequate coverage. It makes the insured responsible for inadequate coverage. For the CFP Board Certification Examination, the client should have an umbrella.
Joe, a CFP practitioner, has various personal, business, and professional insurance policies. He is sued by a client for unsuitable investments recommendations. Which policy or policies will afford Joe coverage? I. Malpractice II. Errors and Omissions III. Personal Umbrella IV. Commercial Umbrella V. Business Owners Policy A. I, III, IV B. II, IV, V C. II, IV D. II E. III, IV, V
D - Professional liability is covered only by errors and omissions. The personal umbrellas, the commercial umbrella, and the BOP all have exclusions for professional liability.
Mr. Harris serves as a director of his condo association. He is not paid for his services. During the year, the management company of the condo lost $1 million due to negligent acts. Can Mr. Harris be sued?
A. No, the management company is solely responsible.
B. Yes, Mr. Harris can be sued.
C. No, Mr. Harris is not an officer of the condo association.
D. No, Mr. Harris is only responsible in case of mismanagement.
B - This is why Mr. Harris should require the condo association to purchase Directors and Officers coverage. He can be sued by an association member.
Which of the following corporate paid insurance premiums or costs are tax-deductible? I. Business owners insurance II. Key man life insurance III. Workers' compensation insurance IV. Federal unemployment tax V. Directors and officers insurance A. I, III, IV, V B. II, III C. II, IV D. III, IV, V E. III, V Insurance Planning Quiz - Lesson 3
A - Answers II is not tax-deductible. Answers I, III, V, and V are business deductions. Unemployment benefits are taxable inco1ne, but the payment of the tax is tax-deductible. Federal unemployment tax is FUTA and is deductible.
NOTE: Although Key Man life insurance is not covered at this point, the only choice is answer A. The answer A’s policies are a business deduction.
Insurance Planning Quiz - Lesson 4
What does the term ‘break point’ mean in a major medical policy?
A. The maximum benefit amount is paid out.
B. The participation (coinsurance) provision begins.
C. The insurer begins to pay 100% of all medical expenses.
D. The insured must incur a specified amount of expense personally before the major medical plan becomes applicable.
C By definition
Which of the following statements concerning Medicare Part B is or are correct?
I. Benefits are subject to calendar-year deductible, and only 80% of the Medicare approved charges are paid.
II. The cost of self-administered drugs is covered.
III. The cost of doctor visits is covered both in and out of hospital.
IV. Part B is a voluntary program of health insurance.
V. Outpatient services by a participating hospital are a covered expense.
A. I, II, IV
B. I, II, V
C. I, III, IV, V
D. IV, V
E. IV
C - Self-administered drugs are not covered. Medicare B is subject to a deductible.
Lars has a medical policy that has a $1,000 deductible and an 80%/20% coinsurance clause of the next
$5,000 of claims. If Lar’s claim is $5,000, how much will he pay?
A. $800
B. $1,000
C. $1,400
D. $1,800
E. $3,200
D Claim $5,000 Lars Insurance Deductible $1,000 ----- Coinsurance 800 (20% of $4,000) $3,200 (80% OF $4,000) $1,800 $3,200
Which of the following is true about preferred provider organizations (PPOs)?
A. Patients must go to a PPO gatekeeper to get to the PPO specialists.
B. PPOs emphasize cost containment.
C. Employees who use PPOs may go out-of-system for needed medical treatment.
D. PPOs have a fixed prepayment fee.
C - HMOs emphasize cost containment.
Ken, who is age 65, has elected to drop his group health plan (family coverage) but continue to work. He elected Medicare Parts A and B. His wife is age 63. What are her options if the company has a self- funded health plan for its 50+ employees?
A. She will not be offered coverage because the employer has a self-funded health plan and no COBRA options.
B. She can get 18 months of coverage under COBRA.
C. She can be covered for 18 months only if her husband, Ken, elects COBRA.
D. She can get 36 months of coverage under COBRA.
D - The qualifying event is ‘eligibility for Medicare.’ He dropped his coverage because he is eligible for Medicare. His family, not him, will get COBRA coverage for 36 months.
Which is true about HIPAA?
A. It is only available to an employee when the company has 20 or more employees.
B. If an individual cannot elect COBRA, that individual cannot elect HIPAA.
C. It affords coverage for up to 36 months, depending on the qualifying event.
D. It allows an employee to take specific insurance from one job to another.
E. It was designed to reduce the problem of ‘job lock.’
E - HIPAA’s main feature is to allow an employee to move from one employer’s health plan to a new employer’s health plan without having to meet the pre-existing requirements of the new employer’s health plan. Answers A and B are COBRA answers. HIPAA is available to all employees with prior medical coverage. Answer D Is wrong. One cannot take specific insurance from one job to another.
Larry (single) has an HSA plan. He elected a $2,200 deductible plan. During the year he has $1,000 of qualified miscellaneous medical expenses not covered by insurance. He withdraws $1,000 from his HSA to pay the medical expenses. What will be the tax result?
A. The $1,000 will be tax-free to Larry.
B. The $1,000 will be taxable to Larry.
C. $350 will be taxable, and $650 will be tax-free (65% rule).
D. $650 will be taxable, and $350 will be tax-free (65% rule).
A - HSA distributions are excludible from gross income if they are used to pay medical expenses. In this question it says he has $1,000 of qualified miscellaneous medical expense not covered by insurance. Answer A is the best choice.
Medicare supplemental policies do which of the following?
A. Cover approved expenses not paid by Medicare
B. Cover expenses not paid by Medicaid
C. Cover nursing home expenses
D. Fully reimburse all expenses not paid by Medicare
A - Medicare supplement policies do not reimburse all expenses not paid by Medicare.
Bob, a self-employed individual (31% tax bracket), has an HSA. He has a $3,100 deductible. Recently, Bob had a medical problem which cost $2,000 in medical expenses. He took a $2,000 distribution from the HSA to pay these expenses. Which of the following is true?
A. Distributions from an HSA are tax-free.
B. The $2,000 is taxable at 31%.
C. Distributions that are used to pay qualified medical expenses are excludable from gross income.
D. The distribution is tax-free only after $3,100 of expenses are incurred.
C - This is similar to Q7 except answer A says distributions. Distributions can be taxable if they are not
qualified. The word ÒqualifiedÓ is missing in answer A. Picky
Mr. Smith, age 65, and Mrs. Smith, age 62, are both working. Who could be covered by Medicare?
A. Neither
B. Mr. Smith only
C. Mrs. Smith because Mr. Smith will be covered
D. Mrs. Smith will not be covered.
B - Answer D does not answer the question (could be ‘covered’).
The major differences between HSAs and HSAs are which of the following?
I. HSAs have smaller deductibles than HSAs.
II. HSAs have smaller maximum out-of-pockets than HSAs.
III. HSAs have catch-up provisions; HSAs do not.
IV. HSAs can be written after 2004; HSAs can be written until the end of 2006.
A. All of the above
B. I, III
C. I, IV
D. II, III
E. II, IV
B - HSAs have larger maximum out-of-pockets than HSAs. After 2005, no new HSAs can be created. 2006 is wrong. Answer II is incorrect.
The COBRA election period is which of the following?
A. 30 days after termination
B. 30 days after the actual notice of the event to the qualified beneficiary by the plan administrator
C. 60 days after termination
D. 60 days after the actual notice of the event to the qualified beneficiary by the plan administrator
D - The 60 days starts with the notification.
Which of the following benefits are provided by Medicare Part A and Part B? I. Acupuncture II. Eye refractions III. Long-term care IV. Diagnostic tests V. 3 pints of blood as an inpatient A. I, II, IV B. II, III, IV C. II, V D. IV, V E. IV
E - Extended care (not LTC) in a skilled nursing home is limited to 100 days. Eye refractions (exams) are not covered. If the hospital has to buy blood for you, you must either pay the hospital costs for the first 3 units you get in a calendar year or have the blood donated by you or someone else. Only IV is covered.
Who is eligible for a HSA?
A. Any individual covered by a HDHP
B. Any individual enrolled in Medicare
C. Any individual claimed on someone else’s tax form
D. Any individual covered by group health insurance
A - Answer B could be true if it said ‘eligible for Medicare’. Answer D may be true. It depends on the plan deductible. HDHP is a high deductible health plan.
Fact: The penalty for late sign-up for Medicare Part D is 1% for each month late. If the base premium is $35 per month today, how much additional monthly premium would John Thomas pay if he signs up 48 month late? A. $16.80 B. $23.04 C. $35 D. $48.04 E. $51.80 Insurance Planning Quiz - Lesson 4
A - $35 x 48% = $16.80
Insurance Planning Quiz - Lesson 5
Sam works for Z Corporation. His salary is $60,000. Sam has disability insurance provided by the corporation based on 60% of his salary. The employer adds the cost of the disability insurance coverage annually to Sam's W-2 ($3,000). Sam is in a 28% bracket. Calculate Sam's net-oHax monthly disability benefit if he remains in the 28% bracket while disabled. A. $2,160 B. $2,268 C. $3,000 D. $3,150
C - Sam’s salary is $60,000. The amount of insurance is based on his salary. His W-2 income is $63,000. The premium is added to his salary in the form of a bonus (not salary). He is paying the premiums; therefore, the benefits are tax-free.
If Z Corporation paid the premium for Sam under a salary continuation contract, what is the answer? Answer: A Answer C is $60,000 at 60% = $36,000 divided by 12.
Mrs. Ledbetter was in the hospital for 6 days to repair an arterial aneurysm under Medicare Plan A ($152.00 - 2014). Upon discharge from the hospital and as part of her prescribed rehabilitation plan, she has entered a skilled nursing facility. The skilled nursing facility charges $302.00 per day. If she stays 30 days, how much must she pay out of pocket? A. $1,500 B. $1,520 C. $4,480 D. $7,460
B - Medicare will pay the first 20 days in full. Medicare will pay the amount above $152.00 for the next 10 days. She will pay $152.00 per day for 10 days, or $1,520. Medicare pays $302.00 for 20 days = $6,040 $150.00* for 10 days = \+1,500 $7,540 * 302.00 - 152.00 = $150.00
Upon returning to work, the insured is unable to earn as much; benefits are proportional to the amount of income lost and are payable for the same duration as total disability benefits. A. Waiting period B. Any occupation definition C. Presumptive disability D. Residual disability E. Probation period
D By definition
The insured is considered disabled only if 'he or she is unable to perform the duties pertaining to any gainful occupation.' A. Waiting period B. Any occupation definition C. Presumptive disability D. Residual disability E. Probation period
B By definition
A period of time after the disability occurs before benefits payments begin. A. Waiting period B. Any occupation definition C. Presumptive disability D. Residual disability E. Probation period
A By definition
Tom is age 65. He falls repeatedly due to Alzheimer’s. Although unhurt, he is admitted into a nursing home because he is unable to care for himself. Which of the following is true?
A. He can be covered by Medicare for 20 days.
B. He could be covered by Medicaid if he qualifies.
C. He will be covered by either Medicare or Medicaid.
D. He will not be covered by Medicare or Medicaid.
B - The key words are ‘could’ and ‘will.’ He ‘could’ be qualified if his resources are insufficient. He will not be covered by Medicare because there was no hospital stay and because his condition is not expected to improve.
When Jody became ill (but not disabled) for a few weeks, John and Jody experienced a negative cash flow. Although both have disability insurance plans, they feel existing coverage will be insufficient to maintain their current lifestyle. Which do you suggest they do?
A. Both should increase their existing individual disability plans to maximum benefits permitted by law.
B. Both should take out additional life insurance and add disability waiver of premium.
C. Both should take out hospital and surgical indemnity policies.
D. Both should take out an LTC policy with home health care.
E. Both should apply for additional individual disability policies with Social Security supplements and guaranteed insurability options.
E - The best answer is Answer E because it addresses the question. Answer A looks good, but you cannot increase the benefits on an existing policy. Even with a guaranteed insurability rider, a new additional policy would be issued.
Which is the best definition of disability from the insured's standpoint? A. Loss of income B. Non-cancellable C. Any D. Own E. Presumptive
D
Dr. Samuels purchased a disability policy with a base benefit of $10,000/mo. and a SIS benefit of
$1,200/mo. Dr. Samuels is totally disabled and ultimately receives $800 in Social Security disability benefits. How much will the carrier pay him each month fron1 the policy once he receives the Social Security benefit?
A. $400
B. $9,200
C. $10,400
D. $10,800
E. $11,200
C - The base plan of $10,000 plus $1,200 - 800 \+ 400 $10,400
Bob would like to purchase a disability insurance policy, but premium cost is a problem. What can he do to reduce the premium costs?
I. Increase the elimination period
II. Delete the presumptive disability coverage
III. Delete the continuance provision
IV. Not buy the COLA rider
V. Purchase a guaranteed renewable policy
A. I, IV, V
B. II, III
C. I, III, IV
D. II, III, V
E. IV, V
A - Bob can reduce the premium by using a longer elimination period and/or choosing a policy with guaranteed renewable rather than non-cancellable. The presumptive disability clause and the continuance provision clause are part of the policy. COLA is a rider (extra cost).
A client already has short-term disability (group with a 6-month benefit). The client wants long-term disability and continuous coverage. Which coverage provisions would least fulfill his/her goal on the new policy? A. COLA coverage B. Increased monthly benefits C. Any occupation D. Elimination period of 180 days Insurance Planning Quiz - Lesson 5
C - The question is asking which coverage provision would least satisfy her goals. Having any occupation would not be beneficial.
Insurance Planning Quiz Lesson 6
When Andy purchased a whole life contract, he wanted the death benefit to increase from year to year. Which dividend option did he elect? A. Paid-up insurance B. Extended term C. One-year term D. Pure life E. Accumulated with interest
C - The one-year term dividend option pays a death benefit equal to the guaranteed cash value (which is increasing). Since the death benefit is based on the cash value, it increases yearly. This is true even if the client borrows against the policy. Paid-up insurance is a non-forfeiture option, not a dividend option. It does not increase; the death benefit is fixed. Accumulated with interest isn’t truly a death benefit. (Dividends are paid in addition to the face amount of the policy.) Paid-up additions would be a correct answer, but it isn’t a choice.
Which of the following is true about term insurance?
A. It can provide permanent protection (30 or more years).
B. It can have a limited amount of cash value.
C. It is usually guaranteed renewable (limited number of years).
D. It is only good for an insured that has a need for a large amount of death benefit.
C - Term insurance is renewable for a period of years.
Janice (50%) and Sylvia (50%) own Jasy, Inc. They have a simple buy-sell arrangement. They feel the company is worth $500,000. Which of the following life insurance contracts would you suggest? A. $250,000 first-to-die B. $250,000 of whole life on each C. $500,000 15-year level term on each D. $1,000,000 15-year level term on each
A - This sounds like a first-to-die application. If the total interest is $500,000 and each owns 50%, then the insurance needs only to cover the first to die (50% of $500,000). The most simple and least costly policy is Answer A. Two $250,000 whole life policies are expensive. After one person dies, the second policy is not necessary. Remember, that is what the question is asking (buy-sell application).
Which of the following is a non-forfeiture option? A. Paid-up additional insurance B. One-year term insurance C. Extended term insurance D. 5th dividend E. Interest only
C - Answers A, B, and D are dividend options. ‘Interest only’ is a settlement option.
Lillian, terminally ill, sells her $100,000 policy to a viatical company for $40,000. What amount of gain must she report if she paid $30,000 of premiums? A. $0 B. $10,000 C. $40,000 D. $60,000 E. $70,000
A - The gain is always zero no matter what the cash value, premium paid, or the payment made by the viatical company.
Client is over 60 years old. If there is no need for life insurance, what is the best non-forfeiture option? A. APL B. Grace period C. Paid-up D. Extended term E. Cash surrender value
E - If there is no need, the client should cash the policy in.
Level amount of life insurance for a fixed period of time A. APL B. Grace period C. Paid-up D. Extended term E. Cash surrender value
D - Definition of extended term
Non-forfeiture option which could have a delay clause A. APL B. Grace period C. Paid-up D. Extended term E. Cash surrender value
E - The cash surrender option has a 6-month delay clause. This is to prevent a ‘run on the bank’. This is a standard provision in life insurance policies. In the real world, there would be no delay,
Policy provision which would create a premium loan to pay a premium in default A. APL B. Grace period C. Paid-up D. Extended term E. Cash surrender value
A - Definition of Automatic Premium Loan (APL)
A client wants to stop paying the premiums on his whole life policy. What are his options?
I. Cash it in
II. Take a reduced amount of paid-up whole life
III. Take a paid-up term (extended term) insurance policy
IV. Use APL to cover the premium (if elected by policyholder)
V. Annuitize the cash value
A. All of the above
B. I, II, III
C. II, III, V
D. IV
A - All the options are available. The APL option is elected by the policyholder at issue or any time by the policyholder. It creates a loan to pay the premium. The loan is not a demand loan.
