life, health, and disability insurance

Question 1

needs approach

Answer 1

evaluates the income replacement and lumpsum needs of survivors in the event of an income producer’s untimely death

Question 2

human life value approach

Answer 2

uses projected future earnings less self-maintenance costs as the basis for measuring the life insurance needs

Question 3

annual renewable term

Answer 3

ART premiums increase annually

no value value

death benefit is fixed at the face amount of the policy

advantages: pure death benefit that is inexpensive, insured receives a maximum death benefit for each dollar in premiums, can be converted to a permanent policy without proving insurability

disadvantages: may become too costly at older ages, no savings component, premiums increase each year

Question 4

level term

Answer 4

premiums are level for a period of time

no cash value

death benefit is fixed at the face amount of the policy

advantages: premiums remain level, provides a pure death benefit protection that is inexpensive, receive a max death benefit for each dollar in premiums, can be converted to a permanent policy without proving insurability

disadvantages: insured overpays premiums initially, no savings component

Question 5

decreasing term

Answer 5

premiums are level

no cash value

death benefit decreases over the term of the policy (appropriate for the purpose of paying down a mortgage)

Question 6

when is appropriate to use term life policies?

Answer 6

to pay off temporary needs such as education funding, paying off debts, or to cover expenses during the grieving process

Question 7

advantages and disadvantages to whole life insurance/permanent life insurance

Answer 7

advantages: provide tax-deferred growth of cash value, provides permanent protection until age 120

disadvantages: premiums are expensive, there is no flexibility with the premium payments, cash value grows gradually, insured may not be able to purchase as much protection

Question 8

ordinary life

Answer 8

insured pays premiums until age 120 or death

cash value increases to face value at age 120

death benefit is level throughout the term of the policy

Question 9

limited pay life

Answer 9

premiums are higher than ordinary life because the insured only pays the premiums until a certain age

Question 10

variable life

Answer 10

cash value is invested in stock, bond, and money market mutual funds aka there is an opportunity for higher returns on cash value exists

death benefit and cash value fluctuate based on investment performance

Question 11

current assumption whole life

Answer 11

insurer uses new money rates and new mortality rates to establish premiums

in the event that interest rates turn out to be too high and premiums too low, the insurer reserves the right to adjust the premium once, usually at the 5 year mark

Question 12

appropriate uses of whole life insurance

Answer 12

anyone with lifetime or permanent needs
estate planning purposes to provide liquidity to pay transfer taxes
insured has a need for investment like performance/returns

Question 13

nonparticipating

Answer 13

when the whole life policy does not pay dividends

Question 14

participating

Answer 14

when the whole life policy DOES pay dividends

Question 15

what are the different dividend options for whole life insurance?

Answer 15

cash - clients receive the money and can use it or invest it

accumulate interest - company invests the dividends and they are tax free up to the client’s basis in the policy

reduce premiums - decreases the out of pocket expense for premiums

paid up additions - purchases additional insurance each year

one year term - adds term insurance each year to the policy face amount qual to cash value of the policy

Question 16

what are the nonforfeiture options for life insurance

Answer 16

cash surrender value = insured receives the accumulated cash value minus surrender charges

reduced paid-up insurance = insured receives the cash value in the form of a paid-up policy with a smaller face amount

extended term insurance = insured receives a cash value in the form of a paid up policy for a specified duration, with the same face amount as the original policy

Question 17

universal life insurance

Answer 17

insured may adjust the premiums paid, face value of the policy, and cash value

insured does not direct the investment portion of the cash value

cash value can be used to actually pay the policy premiums

Question 18

universal life A

Answer 18

a flexible premium, adjustable death benefit, unbundled life insurance contract

if the cash value gets high enough, the death benefit will increase

normally, the amount of insurance purchased declines as the cash value rises, keeping the total death benefit level

Question 19

universal life B

Answer 19

same as Universal Life A BUT the death benefits vary directly with the cash values

more expensive than life A because the death benefit is equal to a specified amount of insurance plus the cash value and the total death benefit will typically rise

Question 20

variable universal life

Answer 20

product with investment options

no minimum guaranteed rate of return or interest

cash value is invested in a separate account, not the insurer’s general account

cash value is not guaranteed

Question 21

non direct recognition program

Answer 21

does not adjust the dividends paid on a policy when there is an outstanding loan against the cash value of a policy

Question 22

direct recognition program

Answer 22

dividends are reduced by any outstanding loan against the policy

Question 23

group term insurance

Answer 23

premiums for the first 50k in coverage is tax free
premiums paid by employer are tax deductible
premiums paid by the employee are with after tax dollars

Question 24

group whole life insurance

Answer 24

allows employees to accumulate savings for retirement through the cash value of a policy

premiums paid by an employer are taxable income to the employee

Question 25

a policy is a MEC aka modified endowment contract when....

Answer 25

it fails the 7 Pay Test aka if the cumulative premiums paid exceed the premiums due for the time period being considered withdrawals or loans are taxed on a LIFO basis

Question 26

does exchanging life insurance to life insurance create a taxable event?

Answer 26

NO

Question 27

does exchanging life insurance to an annuity create a taxable event?

Answer 27

no tax

Question 28

does exchanging an annuity to life insurance create a taxable event?

Answer 28

YES

Question 29

does exchanging an annuity to an annuity create a taxable event?

Answer 29

NO

Question 30

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician's expense, and major medical. what does hospital expenses cover?

Answer 30

covers expenses associated with hospitalization such as room and board charges, but it does not cover physician fees

Question 31

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician's expense, and major medical. what does surgical expenses cover?

Answer 31

covers surgeon fees whether in a hospital or outside of a hospital

Question 32

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician's expense, and major medical. what does physician's expenses cover?

Answer 32

covers all nonsurgical physician expenses

Question 33

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician's expense, and major medical. what does major medical cover?

Answer 33

covers hospitalization, physician, and surgeon fees, physical therapy, and prescription drugs eye exams and dental care are excluded from coverage usually has a 80/20 coinsurance each family member must satisfy a deductible coinsurance portion also applies to each family member

Question 34

health maintenance organizations (HMOs)

Answer 34

delivers comprehensive health care in return for a premium care is managed by a primary care physician who determines what care is received aka GATEKEEPER disadvantage = no coverage "outside" of the HMO

Question 35

preferred provider organizations (PPO)

Answer 35

network of health care providers with whom an employer or insurance company contracts provider offers a discount on services insured receives a high rate of reimbursement when using providers within the organization insured may seek care elsewhere but will suffer a penalty of increased deductibles and coinsurance PPO allows the option to choose a provider outside of the network

Question 36

Managed Care aka Primary Care Physician (PCP)

Answer 36

insured accesses care via a primary care physician who provides services or refers a specialist physicians need approval to perform procedures and it may reduce a patient's option for care if not approved consumer pays a small copayment or other deductible

Question 37

HSA's have a catch up contribution of $1000 at what age?

Answer 37

age 55

Question 38

distributions from an HSA for non qualified medical expenses are subject to income tax and a 20% penalty if taken before age....

Answer 38

65

Question 39

noncancellable policies

Answer 39

policies are continuous and guarantee an insured the right to renew until a specified age or state number of years insurer cannot raise premiums and cannot cancel the policy

Question 40

guaranteed renewable policy

Answer 40

right to renew is guaranteed until a specific age or state number of years insurance company cant cancel the policy but they can raise premiums

Question 41

COBRA must be offered for how many months for a reduction in hours or termination?

Answer 41

18 months

Question 42

COBRA must be offered for how many months for death?

Answer 42

36 months

Question 43

COBRA must be offered for how many months for divorce?

Answer 43

36 months

Question 44

COBRA must be offered for how many months for medicare eligibility?

Answer 44

36 months

Question 45

COBRA must be offered for how many months for loss of dependency status by children of employee?

Answer 45

36 months

Question 46

COBRA must be offered for how many months for the disabled?

Answer 46

29 months

Question 47

employees have how many days to make a COBRA election?

Answer 47

60 days

Question 48

COBRA continuation coverage may be terminated if:

Answer 48

- employer terminates the health plan for all employees as a result of the company going out of business - employee or bene fails to make premium payments - employee becomes covered under any other plan providing medical care

Question 49

Medicaid

Answer 49

available for the nation's poor paid by the government at either the state or federal level or a combination of the two eligibility is based on a person's assets

Question 50

long term care insurance

Answer 50

provides coverage for nursing home stays and other types of care not covered by health insurance 1. skilled nursing 2. intermediate nursing 3. custodial care 4. home health care 5. assisted living 6. adult day care 7. hospice care

Question 51

skilled nursing

Answer 51

traditional nursing home, physician ordered

Question 52

intermediate nursing

Answer 52

occasional nursing care, physician ordered

Question 53

custodial care

Answer 53

assistance with eating, dressing, bathing, etc

Question 54

home health care

Answer 54

in home nursing or necessary assistance

Question 55

assisted living

Answer 55

apartment style living with healthcare services

Question 56

adult day care

Answer 56

daily assistance while a spouse or family member works

Question 57

hospice care

Answer 57

for terminally ill, at home, hospital, or nursing facility

Question 58

chronically ill

Answer 58

unable to perform 2 of 6 ADLs for at least 90 days

Question 59

what are the activities of daily living?

Answer 59

eating bathing dressing transferring from bed to chair using the toilet continence

Question 60

substantial cognitive impairment

Answer 60

behavior threatens own/others health and safety

Question 61

tax benefits for long-term care

Answer 61

premiums are tax deductible benefits are tax-free as long as a policy is qualified (aka person is expected to need care for at least 90 days, unable to perform 2 or more ADL OR a person suffers substantial cognitive impairment

Question 62

definition of disability: any occupation

Answer 62

considered disabled if insured cannot perform the duties of "Any Occupation" provides the least expensive premium

Question 63

definition of disability: modified any occupation

Answer 63

considered disabled if unable to perform duties of gainful occupation they're reasonably fitted by education, experience, training, and prior economic status

Question 64

definition of disability: Own Occupation

Answer 64

considered disabled if insured cannot perform the duties of his "own Occupation" more expensive, ideal for specialized high paying fields

Question 65

definition of disability: split definition

Answer 65

begins with own occupation and moves into modified any occupation after a year or two under the own occupation definition

Question 66

taxation of benefits - disability insurance

Answer 66

if EMPLOYEE pays the premium with after tax dollars -- premiums are not deductible and benefits are tax free if EMPLOYER pays the premium, the premiums are deductible to employer, benefits to employee are taxed if EMPLOYEE pays the premium with pre tax dollars, the benefits to employee are taxed