Exam #1 (CH. 1-4, 6-7)

Question 1

To determine eligibility for residual disability benefits, under the loss of earnings method, residual benefits are usually payable if the insured’s earnings loss exceeds 20 percent.

Answer 1

True

Question 2

The risk of being unable to work is lower than the risk of untimely death for a person of any age.

Answer 2

False

Question 3

Keller works for SMITH’s Repairs, which permits employees to purchase disability insurance as part of a group plan with pre-tax dollars. If Keller is disabled, his benefits are not taxable.

Answer 3

False

Question 4

COLA adjustments for a disability policy are not tied to the insured’s income.

Answer 4

True

Question 5

An advantage of an any-occupation disability policy is that if the insured is disabled for purposes of their own occupation, they can still receive benefits and pursue a new career in any occupation.

Answer 5

False

Question 6

The elimination period for disability insurance is a form of self-insuring for smaller losses, otherwise known as risk reduction.

Answer 6

False

Question 7

It is estimated that 70 percent of people over the age of 65 will need some form of long-term care.

Answer 7

True

Question 8

Most individuals will have sufficient LTC coverage under Medicare, assuming they are age 65 or older.

Answer 8

False

Question 9

Which of the following is one of the six ADL?
A. Handling finances.
B. Doing laundry.
C. Preparing meals.
D. Transferring.

Answer 9

D. Transferring
Eating, bathing, dressing, transferring, toileting and continence are the six activities of daily living. The other choices are instrumental activities of daily living.

Question 10

Long-term care premiums are fully tax deductible.

Answer 10

False

Question 11

Bart exchanges his annuity for a life insurance policy. This transaction is not tax-free.

Answer 11

True

Question 12

Decreasing term insurance has a decreasing premium, but a stable death benefit.

Answer 12

False

Question 13

Factors that an underwriter considers include the person’s age, height and weight, gender, general state of health, lifestyle, medical history, profession, financial status, hobbies, driving record, and whether they use tobacco products.

Answer 13

True

Question 14

Neither the increase in cash value nor the proceeds are generally taxable to the insured on a life insurance policy if the beneficiary dies.

Answer 14

True

Question 15

People generally have a greater need for life insurance in the accumulation phase as compared to the distribution/gifting phase.

Answer 15

True

Question 16

The mortality risk of a term policy decreases each year.

Answer 16

False

Question 17

The owner of a term life insurance policy shifts the financial risk of death for the current year to the insurance company in return for the annual premium.

Answer 17

True

Question 18

The underwriting of a second-to-die whole life policy is based mainly on the healthier of the two individuals.

Answer 18

True

Question 19

Under a cross-purchase buy-sell agreement for a company with 12 partners, they would need to purchase 12 life insurance policies.

Answer 19

False

Question 20

There is no cash value associated with annually renewable term insurance.

Answer 20

True

Question 21

Preexisting conditions may not prevent a person from obtaining health insurance.

Answer 21

True

Question 22

Primary care physicians are generally required as gatekeepers for a policyholder under an HMO policy.

Answer 22

True

Question 23

Robin’s employer sponsors a group health insurance plan and a health care flexible spending account (FSA). This year, Robin contributed $1,000 to the FSA. Her out of pocket co-payments and deductibles for medical and dental care were $950, and she spent $50 to purchase Advil and over the counter cold remedies as prescribed by her physician for a cold. Which of the following statements concerning Robin’s FSA is correct?

A. The unused balance of Robin’s FSA may be carried forward and used for up to two additional tax years.
B. In order to receive a reimbursement from the FSA, the code requires Robin to incur the expenses and request a distribution by the end of this year.
C. Based on her expenses to date, Robin’s FSA will reimburse her $1000 if she timely filed for reimbursement.
D. Based on her expenses to date, Robin’s FSA will reimburse her $950 if she timely filed for reimbursement.

Answer 23

C. Based on her expenses to date, Robin’s FSA will reimburse her $1000 if she timely filed for reimbursement.

Question 24

Sal (who will turn age 65 in 3 months) is married to Norma (age 65), and they have 2 children, Lisa and Jennifer. Since Sal and Norma were married later in life, Lisa (age 19) and Jennifer (age 21) are both under age 24 and are currently enrolled in college. Sal worked for a large automobile manufacturer, and participated in several employee benefit programs, including an employer sponsored health insurance plan. Sal will be retiring on his 65th birthday, and has come to you with questions about the options available for him to provide health insurance coverage for his daughters until they graduate from college. Which of the following statements is correct?

A. Sal can elect to continue to purchase coverage for his children under his employer’s group plan for up to 18 months.
B. Sal’s only option is to purchase individual coverage for his children.
C. Sal can elect to continue to purchase coverage for his children under his employer’s group plan for up to 36 months.
D. Sal can elect to continue to purchase coverage for his children under his employer’s group plan for up to 29 months.

Question 25

To be classified as a qualified health plan under the Affordable Care Act, the plan must provide an essential benefits package in one of four categories: Copper, Bronze, Gold, or Platinum.

Answer 25

False

Question 26

Under the ACA, health insurance companies may offer catastrophic plans to individuals under the age of 40 and individuals who are exempt from the individual mandate.

Answer 26

False

Question 27

Which of the following statements concerning major medical plans is (are) correct? 1. Major medical expense plans contain a coinsurance provision, whereby the plan will pay only a specified percentage of the covered expenses including the deductible. 2. Many major medical contracts contain coverage for hospital, physician's, and surgeon's fees, medications, and durable medical equipment (such as wheelchairs and hospital beds). A. Both 1 and 2. B. Neither 1 nor 2. C. 1 only. D. 2 only.

Question 28

Which of the following statements regarding COBRA benefits is incorrect? A. Employers must offer coverage for 18 months if the employee is terminated and for 36 months if the employee dies. B. The benefit recipient must pay the full cost of coverage plus up to 2% of the premium to cover administrative expenses (if required by the employer). C. Qualifying events for COBRA include death of a covered employee and reduction of an employee's full time hours to part time hours. D. None of the statements are incorrect. E. COBRA requires certain employers to provide previously covered persons with the same coverage received prior to the discontinuation of coverage.

Answer 28

D. None of the statements are incorrect.

Question 29

A subrogation clause prohibits the insurer from seeking reimbursement from a negligent third party for any claims paid to the insured.

Answer 29

False

Question 30

The National Association of Insurance Commissioners (NAIC) is involved in the regulation of insurance by: 1. Direct involvement through the development of specific regulations for all states to follow. 2. The regulation of the insurance commissioners of all states. 3. (Indirectly) The exchange of information and preparation of recommendations. 4. Assuring that all states insurance regulations are uniform. 5. The accreditation of all state insurance regulatory offices. A. 1, 3, and 4. B. 1, 2, and 5. C. 3 and 5. D. 1, 2, 3, 4 and 5.

Answer 30

C. 3 and 5

Question 31

Loss severity: A. Is the probability that a liability judgment may exceed the individual's net worth B. Measures the dollar magnitude or the absolute dollar amount of the expected financial loss were it to occur. C. Determines how often the event is likely to occur. D. Is the probability that any particular property may be totally lost or destroyed.

Answer 31

B. Measures the dollar magnitude or the absolute dollar amount of the expected financial loss were it to occur

Question 32

Loss frequency: A. Is how often the event is likely to occur. B. Is the probability that a liability judgment may exceed the individual's net worth. C. Is the probability that any particular property may be totally lost or destroyed. D. Is the size of the losses that may occur.

Answer 32

A. Is how often the event is likely to occur.

Question 33

A pure risk is where there is: A. A possibility of either profit or loss. B. Only the possibility of loss or no loss. C. A possibility of neither profit nor loss. D. Only the possibility of profit.

Answer 33

B. Only the possibility of loss or no loss.

Question 34

A peril is defined as: A. The immediate cause and reason for a loss occurring. B. A condition that creates or increases the chance of a loss. C. The probability that a loss will occur. D. A moral hazard.

Answer 34

A. The immediate cause and reason for a loss occurring.

Question 35

An circumstance which increases the chance or probability of an automobile accident, is a (an): A. Morale hazard. B. Uninsurable risk. C. Moral hazard. D. Physical hazard.

Answer 35

D. Physical hazard

Question 36

The values exchanged between the insured and the insurer in an insurance contract are unequal. This means the contract is: A. A contract of adhesion. B. A unilateral contract. C. An aleatory contract. D. A conditional contract.

Answer 36

C. An aleatory contract

Question 37

What is the effect of an insurance policy being adhesive? A. The insured cannot assign the policy without the insurer's consent. B. The insurer can require the insured to pay any premiums. C. The insured gets the benefit of the doubt if a policy contains ambiguities or uncertainties. D. The insurer can refuse to pay claims unless the insured has complied with all policy provisions.

Question 38

Which of the following statements concerning the legal requirements of insurance as a contract is (are) correct? 1. The agreement by which insurance is effected is a contract in which the insurer, in consideration of the payment of a specified sum by the policyowner, agrees to make good the losses suffered through the occurrence of a designated unfavorable contingency. 2. To be valid and enforceable, insurance contracts must meet four general legal requirements: an offer by one party and an acceptance by another party; a legal purpose or object; legal competence of both parties; and consideration exchanged by both parties to the agreement. A. Neither 1 nor 2. B. Both 1 and 2. C. 1 only. D. 2 only.

Answer 38

B. Both 1 and 2

Question 39

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

Answer 39

D. Adverse Selection

Question 40

The principle of indemnity requires: 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. Be insured must be subject to financial hardship, resulting from the loss D. The insured and insure must both be forthcoming with all Ralph and facts about the insured risk and coverage provided for that risk.

Answer 40

A. A person is entitled to compensation only to the extent that financial loss has been suffered.

Question 41

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.

Answer 41

B. at the policy inception only.

Question 42

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

Answer 42

B. Implied Authority

Question 43

Which of the following statements regarding loss severity is true? 1. Loss severity is the expected number of losses that will occur within a given time period. 2. Loss severity is the potential size of a loss. A. 1 only B. 2 only 3. Both 1 and 2 4. Neither 1 nor 2

Answer 43

B. 2 only

Question 44

Noncancelable 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-canceled policies cannot have a premium change D. Non-cancelable policies have more liberal health benefits

Answer 44

C. Non-canceled policies cannot have a premium change

Question 45

D. 1, 2, 3, and 4. 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 co-pay will pay? A. $5,200 B. $6,000 C. $6,500 D. $7,500

Answer 45

A. $5,200

Question 46

COBRA coverage is available for which of the following persons? 1. A retiring employee 2. An employee who is terminated 3. 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

Answer 46

D. 1, 2, 3, and 4

Question 47

The Watson family has a family medical policy that provides the following coverage for all four family members: $1,000 per person embedded deductible; $4000 family deductible $4000 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.

Answer 47

C. $68,000 $84,000 - [out of pocket x 4] = $68,000

Question 48

Which of the following is a characteristic of guaranteed renewability? 1. The insurer guaranteed to renew the policy to a stated age. 2. The policy is non-cancelable and the premium may not be increased. 3. Renewal is solely at insurer's discretion. 4. 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

Answer 48

B. 1 and 4

Question 49

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 $1200 B. The elimination period is 45 days C. The policy has a 50% coinsurance clause D. Gunther is concerned to be only 50% disabled

Answer 49

B. The elimination period is 45 days

Question 50

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. $2000 C. $3000 D. $4000

Answer 50

A. $0

Question 51

Which of the following statements regarding disability insurance is false? A. The longer the elimination period, the less expensive of 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 extend beyond the disability.

Answer 51

D. A residual benefit clause provides the insured with benefits extend beyond the disability.

Question 52

How long would someone 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

Answer 52

A) 5 months

Question 53

Medicare is primarily for those people who meet the following eligibility requirements: A. Disabled B. Children C. Low income D. Elderly

Answer 53

D. Elderly

Question 54

Medicaid is primarily for those people who meet the following eligibility requirements: A. Disabled B. Children C. Low income D. Elderly

Answer 54

C. Low income

Question 55

All of the following are activities of daily living (ADLs) as provide under the health insurance portability and accountability act (qualified plans), except: A. Eating B. Bathing C. Maintaining continence D. Cognitive thinking

Answer 55

D. Cognitive thinking

Question 56

There is more than one way to obtain benefits for nursing home coverage. All the following sources provide some benefits, except: A. LTC insurance. B. Health insurance. C. Medicare. D. Medicaid.

Answer 56

B. Health insurance.

Question 57

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

Answer 57

C. Skilled nursing care