Test Prep Flashcards
- The risk that individuals of higher than average risk will seek out or purchase insurance policies is called?
a. Peril.
b. Hazard.
c. Law of Large Numbers.
d. Adverse Selection.
D. The underwriter attempts to manage adverse selection and minimize policy issuance to less desirable applicants
The principle of indemnity requires that:
a. A person is entitled to compensation only to the extent that financial loss has been suffered.
b. Insured cannot indemnify himself from both the insurance company and a negligent third party for the same claim.
c. The insured must be subject to financial hardship resulting from the loss.
d. The insured and insurer must both be forthcoming with all relevant facts about the insured risk and coverage provided for that risk.
A. Option B describes subrogation, option c describes an insurable interest; and option d describes utmost good faith
When must an insurable interest exist for a life insurance claim?
a. At the policy inception and time of loss.
b. At the policy inception only.
c. At the time of the loss only.
d. Either at the policy inception or at the time of the loss.
B. an insurable interest must exist at the policy inception and at the time of loss for a property insurance policy. For life insurance, and insurable interest must only exist at policy inception
Joe walks into his insurance agent’s office and notices his agent’s name on a business card and the insurer’s name on letterhead. If an agency agreement exists, what type of authority does Joe believe his agent has to enter into an insurance contract?
a. Express Authority.
b. Implied Authority.
c. Apparent Authority.
d. None of the Above.
B. Implied Authority includes the visual aids; business cards; letterhead; and signs on the door.
Apparent authority is based upon the agent’s business card, letterhead, and insurance company sign on the door but in fact, no authority actually exists. The key different between apparent and implied authority is that with apparent authority, none actually exists. Express suthority is the agency agreement between the insurance agent and the insurance company
Which of the following statements regarding loss severity is true?
- Loss severity is the expected number of losses that will occur within a given period.
- Loss severity is the potential size or damage of a loss.
a. 1 only.
b. 2 only.
c. Both 1 and 2.
d. Neither 1 nor 2
B
Frequency measures the number of losses expected to occur. Severity measures the potential size in dollars
Non-cancelable health insurance contracts are different from guaranteed renewable contracts because:
a. Non-cancelable policies are not guaranteed renewable.
b. Non-cancelable policies cannot be canceled in mid-term.
c. Non-cancelable policies cannot have a premium change.
d. Non-cancelable policies have more liberal health benefits.
C
A non-cancellable health insurance policy (primarily used with disability insurance) is a continuous term contract guaranteeing the right to renew for a specified period of time with the premium at renewal guaranteed. If the premium were not guaranteed, the the insurance company would be able to raise the premium beyond affordability. Guaranteed renewable contracts allow for automatic renewal, but permit the insurance company to raise the premium for an entire class of insureds.
Mr. Johns has a major medical insurance policy with a $1,000 deductible, an 80% coinsurance clause, and an out-of-pocket maximum of $4,000. He becomes ill and is admitted to the hospital for several days. When he is discharged, his hospital bill is $5,000, and his doctor bills are $2,500. What is the amount that his insurance company will pay?
a. $5,200.
b. $6,000.
c. $6,500.
d. $7,500.
A
Loss = $7,500
Deductible = $1,000
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
$6,500
Less 20% = $1,300
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
$5,200
COBRA coverage is available for which of the following persons?
- A retiring employee.
- An employee who is terminated.
- Spouses and dependents of a deceased employee. 4. An employee no longer able to work due to disability.
a. 3 only.
b. 3 and 4.
c. 1, 2, and 3.
d. 1, 2, 3, and 4.
D
Statements 1, 2, 3, and 4 are correct. All the persons qualify for COBRA coverage
The Watson family has a family medical policy that provides the following coverage for all four family members:
• $1,000 per person embedded deductible; $4,000 family deductible.
• $4,000 out-of-pocket limit per person.
• 80/20 coinsurance provision.
On a family trip, the Watson’s were involved in a bizarre accident when Mr. Watson, in the lead of the group, lost footing on a steep hiking trail and plowed into the rest of the family members, causing them all to tumble down the slope. All four family members were hurt. Each person incurred medical expenses of $21,000. How much will the insurance company pay?
a. $64,000.
b. $67,200.
c. $68,000.
d. $84,000.
C
Total Cost = $84,000
Deductible= $4,000
__________________
$80,000
20% Coinsurance = $16,000
Coinsurance + deductible = $20,000
Maximum out of pocket = $16,000 (4x4,000 = $16,000)
Insurance covers ($84,000 - $16,000) = $68,000
Which of the following is a characteristic of guaranteed renewability?
- The insurer guarantees to renew the policy to a stated age.
- The policy is non-cancelable and the premium may not be increased.
- Renewal is solely at insurer’s discretion.
- The insurer has the right to increase the premium rates for the underlying class in which the insured is placed. Note: not for a single individual.
a. 1 only.
b. 1 and 4.
c. 1, 2, and 4.
d. 1, 2, 3, and 4.
B
Statements 1 and 4 are correct
Which of the following life insurance policies provides the highest benefit for the lowest premium and is simply a pure death benefit policy?
a. Term.
b. Whole life.
c. Universal life.
d. All of the above.
A
Straight forward definition of a term life policy
Ryan and Jody are age 68 and 72, respectively, and are married. They have significant assets that will be subject to estate taxes upon the second spouse’s death. Which of the following life insurance policies would you recommend?
a. Annually renewable term.
b. Second-to-die whole life policy.
c. First-to-die whole life policy.
d. Ordinary whole life.
B
Second to die would reduce premiums and ensure availability of liquidity at the death of the second spouse
Which of the following is needed to calculate the client’s human-life value?
- Average annual earnings to the age of retirement.
- Estimated annual Social Security benefits after retirement.
- Costs of self-maintenance.
- Number of years from the client’s present age to the contemplated age of retirement.
a. 3 and 4.
b. 1, 2, and 4.
c. 1, 3, and 4.
d. 1, 2, 3, and 4.
C
This question asks what information is needed to calculate the value of a life. Clearly you need option 1, 3, and 4. Social security benefits are generally received after retirement and, therefore, are not counted
Terry has been advised by his insurance agent to purchase a variable universal life insurance policy. He has sought your advice regarding this purchase. All of the following are characteristics of a variable universal policy, except:
a. The policy features increasing or decreasing death benefits and flexibility of variable premium payments.
b. The policy owner has exclusive investment control over the cash value of the policy.
c. The death benefit is guaranteed to be equal to the face value.
d. The cash value of a variable universal life policy is dependent on premiums and investment returns.
C
All statements are correct except option c. The minimum death benefit of the VUL policy guaranteed. In addition, another characteristic of the policy is that the premium payments on the policy can be variable, subject to a required minimum to prevent lapse
Which one of the following statements concerning whole life insurance is false?
a. Level-premium whole life insurance accumulates a cash value that eventually reaches the face value of the policy at age 100 - 120.
b. Whole life insurance offers permanent protection throughout the insured’s lifetime.
c. Whole life insurance can be participating, which means the insured must participate in self-directed investments for the cash value.
d. Whole life insurance premiums paid throughout the insured’s lifetime are ordinary life policies.
C
Participating means the insured receives the dividends. All other statements are true
Betty owns a $150,000 whole life participating insurance policy that she purchased ten years ago. She has paid premiums of $4,000 each year since she bought the policy and the current cash surrender value is $60,000. Betty has received $10,000 in paid dividends since the policy inception. Which of the following statement(s) is/are correct regarding Betty’s policy?
- If Betty surrenders the policy now, she will have a taxable gain of $30,000 taxed as ordinary income.
- The dividends that were paid on Betty’s policy were subject to ordinary income tax treatment.
a. 1 only.
b. 2 only.
c. Both 1 and 2.
d. Neither 1 nor 2.
A
The ordinary taxable gain on the surrender of Betty’s policy is $30,000. Premium payments of $40,000, less $10,000 of paid dividends, leave an adjusted basis of $30,000. The taxable gain is $30,000 ($60,000-$30,000)
Watson, Inc. has four equal partners. All four partners are interested in entering into a buy-sell arrangement. How many life insurance policies would be purchased to properly fund using a cross-purchase agreement?
a. 4 policies.
b. 6 policies.
c. 8 policies.
d. 12 policies.
D
Each owner would need to purchase a life insurance policy on the other owners. Therefore, 12 policies would be purchased in total (4x(4-1)=12
All of the following are reasons that an employer might favor a nonqualified plan over a qualified retirement plan except:
a. There is more design flexibility with a nonqualified plan.
b. A nonqualified plan typically has lower administrative costs.
c. Nonqualified plans typically allow the employer an immediate income tax deduction.
d. Employers can generally exclude rank-and-file employees from a nonqualified plan.
C
Nonqualified plans do not allow the employer to take an income tax deduction until the employee recognizes the income. All of the other statements are correct.
Which of the following is false regarding a deferred compensation plan that is funded utilizing a rabbi trust?
- Participants have security against the employer’s unwillingness to pay.
- Rabbi trust provide the participant with security against employer bankruptcy.
- Rabbi trusts provide tax deferral for participants.
- Rabbi trusts provide the employer with a current tax deduction.
a. None, they are all true.
b. 2 and 4.
c. 1, 2, and
4. d. 1, 2, 3, and 4.
D
Rabbi trusts do not provide security against employer bankruptcy or a current tax deduction for the employer
A viatical settlement company purchased a $250,000 policy for $160,000. It paid additional premiums of $7,000 (in total) over the next three years before the insured died. What income must the viatical company report from the policy proceeds in the year of the insured’s death?
a. $0.
b. $83,000 ordinary income.
c. $83,000 capital gain.
d. $90,000 ordinary income.
B
The viatical company must report the gain as ordinary income. the amount of the viatical settlement plus the additional premiums are costs and are deducted from the proceeds in determining the gain
Which one of the following statements regarding disability insurance is false?
a. The longer the elimination period, the less expensive the policy.
b. An own-occupation policy will provide disability benefits if the insured is unable to perform the duties of his or her own occupation.
c. An any-occupation policy is less expensive than an own-occupation policy.
d. A residual benefit clause provides the insured with benefits that extend beyond the disability period.
D
Residual benefit makes up the difference between the wages before disability and wages after diability.
Gunther has a disability income policy that pays a monthly benefit of $2,400. Gunther has been disabled for 60 days, but he only received $1,200 from his disability insurance. Which of the following is the probable reason that he only received $1,200?
a. The policy has a deductible of $1,200.
b. The elimination period is 45 days.
c. The policy has a 50% coinsurance clause.
d. Gunther is considered to be only 50% disabled.
B
If the elimination period extends 15 days into the current month, Gunther will only have received half (15/30) of the monthly benefit. Disability policies do not have a deductible.
Andrea owns and runs a printing company that is organized as an S corporation. Unfortunately, she has an accident with a printing press and is rendered disabled. She receives $4,000 per month in disability payments. The S corporation had paid the premiums on the policy, but reported the payments on her W-2. How much of the benefit is subject to income tax?
a. $0.
b. $2,000.
c. $3,000.
d. $4,000
A
Even though the company paid for the premiums, she picked up the premiums as income. Therefore, the benefits are not taxable
How long would someone have to wait to receive Social Security disability benefits if they qualify?
a. 5 months.
b. 6 months.
c. 12 months.
d. Benefits are paid immediately if eligible.
A
The social security waiting period is five months
Caden has a disability policy with a 12-month elimination period. He was in a bizarre accident involving a crane falling on a building causing part of the building’s exterior wall to fall on his van. He lost the use of both of his legs in the accident. If his policy has a presumptive total disability coverage provision, when will he begin receiving benefits?
a. Immediately.
b. After six months as the provision accelerates the waiting period.
c. After a one month statutory administrative time period.
d. He will have to wait the 12 months.
D
The presumptive total disability coverage provision does not accelerate the elimination period.
Medicare is primarily for those people who meet the following eligibility requirements:
a. Disabled.
b. Children.
c. Low Income.
d. Elderly
D
Medicare is primarily for the elderly, age 65, but it can cover the diabled
Medicaid is primarily for those people who meet the following eligibility requirements:
a. Disabled.
b. Children.
c. Low Income.
d. Elderly
C
Medicaid is primarily for those with low income
All of the following are activities of daily living (ADLs) as provided under the Health Insurance Portability and Accountability Act (qualified plans), except:
a. Eating.
b. Bathing.
c. Maintaining continence.
d. Cognitive thinking.
D
An insured must be unable to perform two fo the six ADLs (Eating, Bathing, Dressin, Transferring from bed to chari, using the toilet, maintaining continence). Cognitive disability is not an ADL but is another way in which a person may become eligible for the long-term care benefits
There is more than one way to obtain benefits for nursing home coverage. All of the following sources provide some benefits, except:
a. LTC insurance.
b. Heath insurance.
c. Medicare.
d. Medicaid.
B
Health Insurance does not provide for this type of coverage. Madicare will provide coverage for up to 100 days
Which of the following is the highest level of care under the category of long-term care?
a. Custodial care.
b. Intensive care.
c. Skilled nursing care.
d. Advanced nursing care.
C
Custodial care is help with activities of daily living. Skilled nursing care requires doctors or nurses to assist with the patient care. Intensive care is medical care provided in a hospital and advanced nursing care is not a real type of care.
Which of the following is true?
a. A fixed annuity mitigates the risk of superannuation. b. A fixed annuity mitigates the risk of superannuation and inflation.
c. A fixed annuity is always a deferred annuity.
d. A fixed annuity is always for a single life expectancy.
A
Annuities migrate the risk of superannuation. Option B is incorrect as fixed annuities are subject to loss of purchasing power. Option c is incorrect as fixed annuities can either be deferred or immediate. Option D is incorrect as a fixed annuity can be for a single life, or for a guaranteed term.
Which of the following risks can an annuity mitigate?
a. Superannuation.
b. Mortality.
c. Superannuation and purchasing power.
d. Mortality and purchasing pow
C
Annuities can help lessen superannuation (risk of outliving funds) and purchasing power (if the annuity is variable). An annuity does not reduce the likelihood of dying (mortality)
Harry, age 63 purchased an immediate annuity. The annuity will provide monthly payments to Harry for as long as he lives. If he dies before receiving payments for 20 years, the remaining payments will go to his beneficiary. What type of annuity did Harry purchase?
a. A life annuity with a term-certain guarantee.
b. An installment refund annuity.
c. A straight-life annuity.
d. A joint and survivor annuity.
A
Harry purchased a life annuity with the guaranteed payments. In this case, the insurer has promised to make at least 240 payments (20 years x 12 months)
Kareem is a drug rep and planning on retiring next month. He is using his accumulated $200,000 to purchase an annuity. Which of the following options will give him the largest monthly annuity payment assuming his life expectancy is 20 years and his spouse’s life expectancy is 22 years.
a. 10 year term certain.
b. Single life annuity over Kareem’s life.
c. 100% joint life annuity over Kareem and his spouse’s lives.
d. 75% joint life annuity over Kareem and his spouse’s lives
A
Payments over 10 years will be larger than payments over 20 years or more. even if they are guaranteed
Perry, who is 50 years old, was building a new home for his family. However, he was running out of money and could not afford the pool they fell in love with. Since his family was upset, he decided to take a withdrawal from his annuity. He had contributed $100,000 to the annuity, and the value of the annuity today is $300,000. He decided to take a withdrawal of $60,000 from the annuity. Which of the following is correct?
a. $40,000 is taxable as ordinary income.
b. $40,000 is taxable as ordinary income and subject to the early withdrawal penalty.
c. $60,000 is taxable as ordinary income.
d. $60,000 is taxable as ordinary income and subject to the early withdrawal penalty.
D
When distributions (withdrawals) are taken from an annuity before annuitizing, the entire distribution muse be included in the taxpayer’s gross income until all of that gain in the contract has been distributed. When taxable income is received from an annuity before the recipient (owner) reaches the age of 59 1/2, a 10 percent penalty tax (10 percent of the taxable income) is imposed.
Otto rents an apartment for $500 per month and has $50,000 content coverage. If he is unable to occupy his apartment due to a negligent fire caused by a neighbor, for up to how many months could he rent another apartment if the cost of the new apartment is $750 per month?
a. 60 months.
b. 6 months.
c. None because negligent acts are not covered.
d. None because content coverage does not cover reimbursement for rent
A
30% of the content equals $15,000. If the excess rent is $250 per month, Otto could continue to receive loss of use benefits for up to 60 months if that amount of time was reasonable
Mary lives in Idaho where she carries the state-mandated minimum liability insurance on her car (15/30/10) through her personal automobile policy (PAP). She is driving through Oklahoma and has a wreck with Gerri. Oklahoma requires minimum liability insurance of 30/50/20. Gerri suffers bodily injury in an amount of $40,000 and Gerri’s vehicle is damaged in an amount of $22,000. How much will Gerri collect from Mary’s PAP policy?
a. Bodily injury $40,000 and property $22,000.
b. Bodily injury $15,000 and property $10,000.
c. Bodily injury $30,000 and property $20,000.
d. Bodily injury $30,000 and property $22,000.
C
Mary’s policy limits will increase to the amount required in Oklahoma. Gerri will have to sue Mary for her excess non-insured losses
Which of the following would not be considered an insured person for the purposes of Part A (Liability Coverage) for a Personal Auto Policy?
a. You.
b. Any family member.
c. Any person using “your covered auto” with permission.
d. Any person using “your covered auto” without permission.
D
A person using an automobile without permission is not covered
Mike has the following split limits of coverage on his Personal Auto Policy of 100/300/50. Which of the following best describes Mike’s coverage?
a. $100,000 per person for bodily injury, $300,000 per occurrence for bodily injury and $50,000 for property damage.
b. $100,000 per covered auto, $300,000 per occurrence for covered auto and $50,000 for uninsured motorist.
c. $100,000 per person for bodily injury, $300,000 per occurrence for property damage and $50,000 for uninsured motorist.
d. $100,000 for property damage, $300,000 per person for bodily injury and $50,000 for property damage.
A
Split limits read: bodily injury per person/per occurrence for bodily injury/property damage
All of the following statements are correct regarding a personal liability umbrella policy except:
a. The PLUP provides protection above and beyond the liability limits of your homeowners and automobile insurance policies.
b. The PLUP requires the insured to carry certain underlying minimum amounts of liability for homeowners and PAP.
c. The PLUP insurer provides legal defense to the insured.
d. The PLUP is only appropriate for individuals with a high net worth.
D
Future earnings can be garnished. a PLUP may protect against garnished wages
Why are auto loans generally the easiest loans to get?
a. Due to consumer protection.
b. There is usually a down payment, and an auto loan is secured.
c. An auto loan only requires a minimum credit score.
d. Automobiles are easy to repossess due to GPS being placed in all cars with loans.
B
The auto serves as security for the loan, and borrowers are more likely to pay their car loans than other debts.
Which of the following likely has the highest credit score?
a. Forrest has five credit cards, credit utilization of 40%, and a perfect payment history for five years.
b. George has three credit cards, credit utilization of 29%, an installment loan, a mortgage, and a perfect payment history for three years.
c. Connor has two credit cards totaling a $50,000 limit.
d. Floyd has a 30-year mortgage in the 10th year with a perfect payment history and the mortgage is his only deb
B
Payment history, credit utilization, mix of credit, and history are all critical to credit scores. George has a lower utilization and a broader mix of credit
The two most well-known credit scores are?
a. FICO and Auto.
b. Auto and Vantage.
c. Vantage and FICO.
d. FICO and Rico.
C
FICO and Vantage are the two most well-known credit scores
Which of the following is the acronym recommended by the U.S. Justice Department to avoid identity theft?
a. SCRAM.
b. SNAG.
c. SHAKE.
d. SCAM.
D
SCAM: Stingy, Check, Ask, Maintain
Which of the following is incorrect about credit freezes and extended fraud alerts?
a. A credit freeze stops all access to the credit report.
b. An extended fraud alert allows the consumer two free credit reports within 12 months from each of the reporting agencies.
c. The extended alert lasts 24 continuous months.
d. Some states charge a fee for placing a credit freeze.
C
The extended fraud alert lasts 7 years
Social Security is funded through all of the following except:
a. Employee payroll tax.
b. Employer payroll tax.
c. Sales tax.
d. Self-employment tax.
C
Employee and Employer payroll tax and self-employment tax are the sources of funding for Social Security. Sales tax does not fund Social Security
Brisco, now deceased, was married for 12 years. He had two dependent children, ages 10 and 12, who are cared for by their mother age 48. His mother, age 75, was his dependent and survived him. At the time of his death, he was currently but not fully insured under Social Security. His dependents are entitled to all of the following benefits except:
a. A lump-sum death benefit of $255.
b. A children’s benefit equal to 75% of Brisco’s PIA.
c. A caretaker’s benefit for the children’s mother.
d. A parent’s benefit
D
A lump-sum death benefit of $255 is payable to the surviving spouse or children of the deceased worker if he was fully or currently insured. The children’s benefit is payable because Brisco was either currently or fully insured. It is 75% of his PIA. The children’s mother would be entitled to a benefit for caring for the children under the age of 16. His dependent mother is only entitled to a benefit if he was fully insured, not currently insured.
Medicare Part A provides hospital coverage. Which of the following persons is not covered under Part A?
a. A person 62 or older and receiving railroad retirement.
b. Disabled beneficiaries regardless of age that have received Social Security for two years.
c. Chronic kidney patients who require dialysis or a renal transplant.
d. A person 65 or older entitled to a monthly Social Security check.
A
Medicare Part A requires a person to be age 65. People who are disabled or have permanent kidney failure are entitled to Medicare at any age
A person receiving Social Security benefits under full retirement age can receive earned income up to a maximum threshold without reducing Social Security benefits by the earnings test. Which of the following count against the earnings threshold?
a. Dividends from stocks.
b. Rental income.
c. Pensions and insurance annuities.
d. Self-employment income.
D
Earnings that count against the earnings threshold include W-2 wages and net self-employment income. All the other are not earned income for Social Security purposes
All of the following statements concerning Social Security benefits are correct except:
a. The maximum family benefit is determined through a formula based on the worker’s PIA.
b. If a worker applies for retirement or survivors’ benefits before his 65th birthday, he must also file a separate application for Medicare.
c. People who are disabled or have permanent kidney failure can get Medicare at any age.
d. The Social Security Administration is concerned with beneficiaries’ combined income, which, on the 1040 federal tax return, includes adjusted gross income and nontaxable interest income
B
If a worker applies for retirement or survivor’s benefits before his or her 65th birthday, there is no need to file a separate application for Medicare
All of the following statements regarding risk are correct EXCEPT:
A: Objective risk is the difference between the expected and actual losses.
B: Particular risk is a risk that will impact a large group of individuals simultaneously.
C: Subjective risk is the risk that an individual perceives based on that person’s prior experiences.
D: Speculative risk is the chance of loss, no loss, or a profit.
The correct answer is (B).
Fundamental risk will impact a large group of individuals simultaneously, whereas a particular risk only impacts one individual.
Which of the following is a risk reduction technique?
A: Purchasing life insurance
B: Parking your car at the end of the parking lot, away from other cars
C: Choosing not to go skydiving
D: Buying a warranty on your new TV
The correct answer is (B).
Parking your car away from other vehicles is an example of a risk reduction technique because you are reducing the likelihood of car damage. Purchasing a life insurance policy and buying a warranty are risk transfer techniques, and choosing not to go skydiving is an example of risk avoidance.
The immediate cause and reason for a loss occurring, such as a hurricane, is referred to as a(n)
A: hazard.
B: insurable risk.
C: peril.
D: risk.
The correct answer is (C).
A peril is the immediate cause and reason for a loss occurring. A hazard is a specific condition that increases the likelihood of a loss occurring. Risk is simply the possibility of a loss occurring, and an insurable risk is merely a risk for which an insurance company is able to offer protection.
Icy roads and wet floors that increase the likelihood of a loss occurring are known as which type of hazard?
A: Physical hazard
B: Character hazard
C: Moral hazard
d: Morale hazard
The correct answer is (A).
Physical hazards are those physical conditions that increase the likelihood of a loss occurring. Examples of physical hazards are wet floors or icy roads. A moral hazard is the potential for loss caused by the character of the individual. A morale hazard is defined as indifference to risk due to the fact that the insured has insurance. There is no such thing as a character hazard.
Which of the following statements is (are) correct regarding insurance contracts?
I. The principle of insurable interest is closely aligned with the principle of indemnity, in that both limit the insured from experiencing a gain using insurance.
II. A subrogation clause in an insurance policy requires that the insured relinquish a claim against a negligent third party if the insurer has already indemnified the insured.
A: I only
B: II only
C: Both I and II
D: Neither I and II
The correct answer is (C).
Both statements are correct with regards to insurance contracts.
Which of the following is not an element of the principle of utmost good faith?
A: Concealment
B: Warranty
C: Representation
D: Waiver
The correct answer is (D).
A waiver is not an element of the principle of utmost Good good faith. A waiver occurs when a party to a contract relinquishes a known legal right.
The section of an insurance contract that describes exactly which property or person is being covered is the
A: declarations section.
B:inclusions section.
C: definitions section.
D: conditions section.
The correct answer is (A).
The declarations section describes exactly which property or person is being covered. An inclusions section is not usually included in an insurance contract. The definitions section defines key words or phrases used throughout the contract. The conditions section lists provisions that require an insured to perform certain duties.
All of the following statements regarding insurance policies are correct EXCEPT:
A: Adverse selection is the tendency of those who most need insurance to purchase insurance policies while those with the least perceived risk are less likely to pay the necessary premiums for insurance.
B: An endorsement is a modification or change to a life or health insurance policy.
C: Co-payments are loss-sharing arrangements whereby the insured pays a flat dollar amount or percentage of the loss in excess of the deductible.
D: Deductibles serve as motivation for an insured to take precautions to avoid losses or to prevent the filing of false claims.
The correct answer is (B).
An endorsement is a modification or change to an existing property insurance policy, whereas a change to a health or life insurance policy is a rider.
Premium rates set by insurance companies are regulated at which level of government?
A: Federal
B: State
c: Local
D: None of the above
The correct answer is (B).
Insurance premiums are regulated at the state level.
Ashley owns a home with a $400,000 replacement value. This February, a blizzard causes $75,000 in damages to the home. Ashley has an insurance policy with 80 percent coinsurance and a $1,000 deductible. How much will the insurer pay if Ashley carries $300,000 of coverage?
A: $60,000.00
B: $69,312.50
C: $70,312.50
D: $75,000.00
The correct answer is (B).
[$300,000 ÷ (0.80 × $400,000)) )] × $75,000 = $70,312.50 − $1,000 deductible = $69,312.50
The Affordable Care Act (ACA) requires large employers to provide a minimum level of health insurance coverage to employees or face significant tax penalties. According to the ACA, a large employer is a company that, at any point during the year, employs at least
A: 25 people
B: 40 people
C: 50 people
D: 100 people
The correct answer is (C).
The ACA defines a large employer as a company that, at any point during the year, employs at least 50 people.
Belinda is a participant in her employer’s group comprehensive major medical insurance plan. The plan has a $500 deductible, a $2,500 out-of-pocket maximum, and 80 percent coinsurance. If Belinda is injured in an accident resulting in $2,000 in medical costs, how much will Belinda need to pay for the medical bills?
A: $0
B: $400
C: $800
D: $2,000
The correct answer is (C).
Belinda will need to pay the first $500 to cover the deductible, then 20% of the remaining $1,500 (that is, $300) for a total of $800.
A grace period is granted to the insured in the event that he or she is late making a premium payment. In a traditional health insurance policy, the grace period is
A: 15 days.
B: 31 days.
C: 60 days.
D: 90 days.
The correct answer is (B).
The grace period is usually 31 days. During the grace period, a policy may not be canceled by the insurer.
Indemnity health insurance plans are one of the ________ flexible types of insurance policies in terms of having the freedom to pick one’s own providers, but participants pay some of the ________ premiums.
A: Most; highest
B: Most; lowest
C: Least; highest
D: Least; lowest
The correct answer is (A).
Indemnity health insurance plans give participants the freedom to choose their own health care providers, but they pay some of the highest premiums.
Which of the following policies provides the greatest degree of protection to the insured?
A: Conditionally renewable
B: Noncancelable
C: Guaranteed renewable
D: Optionally renewable
The correct answer is (B).
A noncancelable policy offers the greatest amount of protection for the insured since the insured can force the insurance company to provide continued coverage, at the same premium, simply by paying the premium on the policy.
Amanda, an employee at Computer Solutions, recently divorced her husband, Carlos. Computer Solutions has provided group health insurance coverage to Amanda and her family since she began working for the company. Carlos is unemployed but is entitled to COBRA continuation coverage for
A: 12 months.
B: 18 months.
C: 29 months.
D: 36 months.
The correct answer is (D).
Carlos may obtain group health insurance coverage under Amanda’s plan for 36 months after the divorce.
All of the following are true regarding health savings accounts (HSAs) EXCEPT:
A: HSA funds can be invested.
B: Contributions made to the HSA by the plan participant are tax-deductible as an adjustment to gross income (above-the-line).
C: If an employer makes contributions to an HSA on behalf of an employee, the employer contributions are included in the taxable income of the employee.
D: To be eligible to make HSA contributions, an individual must be covered by a high-deductible health insurance plan.
The correct answer is (C).
If an employer makes contributions to an HSA on behalf of an employee, and the contribution limits are not exceeded, the employer contribution is not included in the taxable income of the employee.
A health savings account (HSA) and a flexible spending account (FSA) have several similarities including
A: that all funds carry over from year to year.
B: their use of pretax contributions.
C: that funds are invested.
D: all of the above.
The correct answer is (B).
Both FSAs and HSAs use pre-tax contributions. Funds only carry over from year to year in an HSA, not in an
FSA. Only funds in an HSA are invested; FSA funds are not invested.
