Insurance Flashcards
(7 cards)
all of these companies provide ratings for insurance companies
A.M Best, Standard and Poor’s and Moody’s
Jill Smith is an agent acting as a buyer for Tom Jones, d/b/a TKJ Auto Repair, a sole proprietorship. Her authority is limited to purchasing supplies and equipment up to $5,000 in cost. Jill signs a promissory note borrowing $5,000 from a third party. Tom Jones uses the funds for business purposes. Which of the follow-ing statements describes Tom Jones’ responsibility for Jill Smith’s action
a) Jones is not bound by Smith’s actions since she lacked the actual authority to sign for the loan. b) Jones is not bound by Smith’s actions since she lacked the necessary power of attorney to sign for the loan.
c) Jones is not bound by Smith’s actions since she lacked the express authority to sign for the loan. d) Jones is bound by Smith’s actions since he ratified her action by using the loan proceeds for his business.
e) Jones is bound by Smith’s actions since she has the authority to purchase
Jones is bound by Smith’s actions since he ratified her action by using the loan proceeds for his busi-ness.
Which one of the following statements about life insurance products and their tax attributes is correct?
a) Modified endowment contracts do not provide a tax-free death benefit if the policyholder dies prior to age 59.
b) Tax-deferred annuities owned by a corporation are eligible for tax-deferred accumulation. c) Permanent life insurance owned by a pension plan is 100% income tax free to the beneficiary of the plan.
d) If a person purchased a life and 20-year term-certain immediate annuity at age 50, there would be no premature distribution penalty.
e) Policyholders of single payment deferred annuity contracts purchased prior to 1987 may withdraw funds tax free from their policy up to basis.
“D is indeed the correct answer because immediate annuities are not subject to a premature distribution pen-alty tax. This only applies to deferred annuities.”
Which of the following is not needed to calculate the client’s human life value?
a) Average annual earnings to the age of retirement. b) Estimated annual Social Security benefits after retirement. c) Costs of self-maintenance. d) Number of years from the client’s present age to the contemplated age of retirement. e) Selection of an appropriate capitalization rate.
Answer: B Average annual earnings prior to retirement, cost of self-maintenance, remaining work life expectancy and an appropriate capitalization rate.
Regarding the characteristics of insurance, which of the following is/are fundamental?
- Probability (possibility and predictability of a loss).
- Law of large numbers.
- Transfer of risk from individual to group.
- Insurance is a form of speculation.
a) 1 and 2.
b) 1, 2, and 4.
c) 1, 2, and 3.
d) 4 only.
e) 1, 2, 3, and 4.
Answer: C All of the above are true, except insurance is not designed to cover speculative risk. Speculative risk involves loss, no loss or gain. Insurance only covers pure risk, loss or no loss.
The National Association of Insurance Commissioners is involved in the regulation of insurance by
- Direct involvement through the development of specific regulations for all states to follow.
- The regulation of the insurance commissioners of all states.
- (Indirectly) the exchange of information and preparation of recommendations.
- Assuring that all states insurance regulation is somewhat uniform.
- Accrediting state insurance regulatory offices.
a) 1, 2, and 5.
b) 1 and 4.
c) 3 and 5.
d) 4 only.
e) 2, 3, and 4
Answer: C The NAIC only provides guidance and recommendations to the state insurance commissioners. While they only provide recommendations, the NAIC has no actual control over the state insurance regulations.
Jasmine’s mother, Betty, moved in with her 4 years ago after the loss of Jasmine’s dad. 6 months ago Betty was diagnosed with dementia and requires more care than Jasmine can provide. They have chosen to place Betty in a nursing home near by. The home is $7,000 a month. Betty currently has $21,000 in assets. Betty has also been gifting Jasmine $600 a month for the last 4 years to help with the home and kids activities. When will Betty be eligible for Medicaid coverage of her care?
a) Immediately.
b) 3 months.
c) 4 months.
d) 7 months.
Answer: D Betty currently has $21,000 in assets that will cover the first 3 months of care (21,000/7,000 = 3). She gifted a total of $28,800 to Jasmine in the prior 5 years (600 x 12 = 7,200 x 4 years = $28,800). The penalty period would 4 months ($28,800 / $7,000 = 4.1143) plus the 3 months she covered out of pocket, tells us Medicaid will pick up the costs after 7 months.
