Insurance Pre-Study Books Flashcards

Question

Health Insurance

Answer 1

traditional medical expense insurance is dividend into 4 categories: - hospital expense - room & board -surgical expense - covers surgeon fees inside and outside of hospital -physician's expense - covers all nonsurgical physician expenses -major medical - covers hospitalization, physician and surgeon fees, physical therapy, prescirption drugs. Eye exams and dental are excluded from coverage. 80/20 consiruance rule (after meeting deductible). Each family member must statisfy a deductible with a maximum of 3 deductibles per family. Coinsurance portion also applies to each family member

Answer 2

requires most u.s. citizens and legal residents to have health insurance. No tax penalty for non-compliance (now) creates exchanges for health insurance for individuals and small biz. - Employer Requirements: Employers with 50+ uninsured FT employees = $2K/FT employee up to first 30 from assessment. More than 200 employees? Must automatically enroll employee in health insur. plan offered by compannt Creates four benefit categories - bronze (min. coverage), silver (covers 70% of benefit costs), gold (covers 80% of benefit costs), platinum(covers 90% of benefit costs), Prohibits lifetime limits and annual limits on dollar value of coverage Dependet coverage for children up to Age 26.

Answer 3

* **_HMO_** - care is managed by a PCP who determines what care is received. **Primary disadvantage is that there is no coverage “outside” of the HMO**. * Staff model - HMO is a corporation and medical staff members are employees of the HMO * Group model - AKA network model. HMO contracts with groups of medical providers to care for insured plan subscribers * Individual Practice Associaion - Physicians who have their own office locations by contract out the HMO on a fee-for-service basis. Most flexible * **_Preferred Provide Organization_** -network of health care providers with whom an employer or insurance company contracts. Provides a discount on services. Insured receives a high rate of reimbursement when using providers within org. Seek care OON? Increased deductibles and coinsurance. **PPO preservers employees option to choose a provider outside of network.*****PPO***, or Preferred Provider Organization***health*** plans, offer a popular combination of cost savings and flexibility. * **_Managed Care (PCP) -_** insured accesses care via a PCP who provides services or refers to specialist. Consumer pays a small copayment or other deductible. Physicians need approval to perform certain procedures and it may reduce a patient's options for care if not approved.

Answer 4

* provide employees and individuals seeking health care a tax dedction for amounts contributed to their accounts and tax free and earning free growth (distributions tax free and penalty free if used for qualifying medical expenses * EE and ER contributions okay * Eligibility: must have HDHP * Disqualifiers: -covered in anyway by a non-HDHP. Particiaption in medicare. anyone who MAY or IS claimed as Dependent on another's return. * **The maximum HSA contribution includes both employer + employee contributions**. * Catch up contribution of $1K if 55 and older (not 50 and older like IRAs) * Contributions tax deductible for EE, ER, family members who receive ccontributions on their behalf Qualified expenses (no premiums EXCEPT) - COBRA, medicare premiums, LTC premiums, premiums while receiving unemployment, dental/vision care Distributions for NQ withdrawals are subject to income tax and 20% penalty before age 65 After 65 - just income tax applies

Answer 5

* pre-existing conditions won't restrict you from switching from one group plan to another (HIPAA does not apply if switching from group to indiv or indiv to indiv) * **Coverage of a preexisting medical condition may be limited or excluded for up to 12 months for those who enroll in a group health plan when first eligible to enroll**. In the case of late enrollment, the maximum permitted limitation is 18 months.

Answer 6

* extension of group health insurance with the same coverage * employer may charge 2% for admin expenses (total expense to employee is 102% of actual insurance cost) * applies to loss of coverage for employee, employee's spouse and/or dependent children * To be eligible for COBRA: - employed individual dies employee is voluntarily or involuntarily terminated hours are reduced from FT to PT covered employee separates from spouse employee becomes eligible for Medicare dependent child is not longer eligible for coverage (married, age, left school) * EE have 60 days to make election * COBRA applies to employers who offer group health care plan NAD have at least 20 employees. * ER must offer COBRA for a specific period of time based on the following events: -18 months for reduction in hours of normal termination 36 months for death 36 months divorce 36 months for Medicare eligibility 36 months for loss of dependency status by children of employee 29 months if employee meet ss definition of disabled Memorize the 18 months for reduction in hours or involuntary/voluntary term. All others are 36 months. Eligible COBRA continuation coverage: - bankruptcy of company, EE doesn't make premium payments, EE becomes covered under another plan

Answer 7

* Medicaid - poor people. Paid at state and or federal level. Determined based on person's assets (In order to be eligible for Medicaid, applicants must have no more than $2,000 in "countable" assets). * ACA expanded Medicaid coverage * Individuals going to nursing home can apply for medicaid and are eligible once assets are spent down (subject to state limits) * may be a penalty period based on the amount of assets gifted in last five years prior to entering a nursing home * any gifted assets will be assessed in formula Ex: if nursing home costs $5K/mo,. and they gifted $15K first 3 months would not be covered by Medicaid

Answer 8

Medicare benefits are availble to those eligible for SS LTC benefits under Medicare are extremely restrictive What Types of Care Does Medicare Cover? * Skilled nursing care. Medicare helps to pay for your recovery in a skilled nursing care facility after a three-day hospital stay. Medicare will cover the total cost of skilled nursing care for the first 20 days, after which you’ll pay $185.50 coinsurance per day (in 2021). **After 100 days, Medicare will stop paying.** * Home [_health care_](https://www.webmd.com/health-insurance/default.htm). If you are homebound by an illness or injury, and your doctor says you need short-term skilled care, Medicare will pay for nurses and therapists to provide services in your home. This is not round-the-clock care. **Generally, it's for no more than 28 hours per week.** With your doctor's recommendation, you may qualify for more. * [_Hospice_](https://www.webmd.com/palliative-care/hospice-care). Medicare covers [_hospice_](https://www.webmd.com/palliative-care/hospice-care) care. Hospice is care you get to make you more comfortable when you are in the last stage of life with a terminal illness. You're eligible if you are being treated for your terminal illness, and your doctor certifies that you probably will live no longer than six months. You can get care for longer than that, as long as your doctor says you are still terminally ill. **Eligibility & Benefits for LTCI POLICY** * LTCI Benefits Triggered by ADLs * Chronically Ill - Unable to perform 2 of 6 ADLs for at least 90 days * **Bathing**. The ability to clean oneself and perform grooming activities like shaving and brushing teeth. * **Dressing.** The ability to get dressed by oneself without struggling with buttons and zippers. * **Eating**. The ability to feed oneself. * **Transferring**. Being able to either walk or move oneself from a bed to a wheelchair and back again. * **Toileting**. The ability to get on and off the toilet. * **Continence**. The ability to control one's bladder and bowel functions. * Substantial cognitive impairment - behavior threatens own/others health and safety * Services Provided Include ADL & IADL

Answer 9

Individuals use a LTC policy to pay the first portion of LTC and then qualify for Medicaid without the spend down requirement Ex: if the LTC policy provides for $200K of lifetime benefits, the individual will be able to shelter the $200K from the Medicaid spend down requirement

Answer 10

premiums are tax deductible and deductibility is limited based on age of the insured benefits are tax free as long as policy is qualified. (peson needs care for 90 days, unable to perform 2 or more ADLs or substantial cognitive impairment) LTC does not contain a surrender valued

Answer 11

* unable to work because of illness or injury * Policy issues: * coverage (sickness/accident) * Term * elimination period (0 to 180 days) * taxability of benefits (depends on payor) * amount of benefits (60-70%) * definition of disability * residual benefit * pronation period The Elimination Period is defined as **the period starting from the day you first become disabled and continuing for the period noted in the policy**. This may be 90 days or 180 days or whatever the policy calls for. No Benefits Paid: During the EP, no benefits are paid.

Answer 12

Benefit Period - ST: 2-6 yrs. LT: retirement age, death or specific period of time Elimination period - premiums are waived. Elimination period serves as a deductible. Taxation of Benefits * EE pays premium with after tax dollars - premiums are not tax deductiblem, benefts are tax free * ER pays premium - ER deducts premium, beenfits to EE are taxed * EE pays with pre tax dollars: benefits to EE are taxed (cafeteria plan)

Answer 13

Answer: B. Conditional Receipt. A conditional receipt **gives an insurance company a window of time in which they can ultimately issue or refuse to approve the policy**. If during this time, the applicant for a life insurance contract dies, the company will pay a death benefit if the policy would have been issued. A ***conditional receipt*** is a document given to someone who applies for an ***insurance*** contract and has provided the initial premium payment. Condiitonal rceipt will not be issued until application is complete and initial premium is rec'd.

Answer 14

**Includible in the income** for federal tax purposes **without regard** to any other source of income If disability insurance premiums are paid by the employer, any benefits rec'd will be included in taxable income. Any disability premiums paid by the insured with after-tax dollars, then any benefits rec'd will be tax free.

Answer 15

Answer. B. Remember that individual states regulate the insurance industry. Must have license in that state to sell products

Answer 16

Answer: 7 months. $21K will cover first three moths of care. She gifted a total of $28K in prior 5 years. Penalty period is four months ($28,800/7000 = 4.1143) plus the three months she covered out of pocket. In order to be eligible for Medicaid, applicants must have **no more than $2,000** in "countable" assets (the dollar figure may be slightly more, depending on the state).

Answer 17

Answer B. This is an example of the “unholy trinity” where the owner, insured and been are all different. If insured dies, owner has made a gift to the bene. A major plus with life insurance is that the death benefit is usually tax-free. Your beneficiaries receive the money and don’t have to worry about a cut going to Uncle Sam. But there’s an exception you should know about if you’re planning to buy life insurance and want to protect yourself from a gift tax. The tax trap is known as the “unholy trinity” or “the Goodman Triangle” after a 1946 court case, [*Goodman v. Commissioner of the Internal Revenue Service*](http://www.gpo.gov/fdsys/granule/USCOURTS-ca8-07-02952/USCOURTS-ca8-07-02952-0/content-detail.html). It happens when three different people play the roles of policy owner, insured and beneficiary. Think of a life insurance policy as a triangle, says Amy Rose Herrick, a Chartered Financial Consultant and founder of the Money With Amy website. The three points of the triangle are as follows: * The policy owner — the person who bought the policy and pays the premiums. * The insured — the person whose life the policy covers. * The beneficiary — the person designated to receive the death benefit when the insured dies. “You always want two points of the triangle to be the same person, company or charity,” Herrick says. If there are three different people at the three points, then the death benefit could count as a taxable gift to the beneficiary.

Answer 18

Answer. 1 and 4. A group term LI can be converted to an individual permanent LI policy, however a group permanent policy cannot be converted to a term policy. The insured does NOT have to prove insurability A term-to-permanent life insurance conversion, or “term-to-perm” conversion, **allows you to extend your life insurance coverage**. You may have a 10-,15-, 20- or 30-year term life insurance contract now. Instead of letting it expire, you may be able to exchange it for a permanent policy without needing a new medical exam.

Answer 19

Answer. 1,2 and 3. All the abonve 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.

Answer 20

Answer: 3 and 5 The NAIC only provides guidance and recommendation to the state insurance commissions. While they only provide recommendations, the NAIC has no actual control over the state insurance regulation

Answer 21

All the above. All of the benes are eligible for COBRA benefits

Answer 22

Answer: all the above except the tax liability. The benefits are tax free so he doesn't need to consider it.

Answer 23

Review the insurance practice exam

Answer 24

If policy is participating, then the dividends paid out are treated as a return of capital/return of premiusm paid and are NOT TAXABLE to the insured.

Answer 25

Hazards. Hazards increase the frequency of a loss. Perils are the proximate cause of a loss

Answer 26

Subrogation allows your insurer to recoup costs (medical payments, repairs, etc.), including your deductible, from the at-fault driver's insurance company, if the accident wasn't your fault. A successful subrogation means a refund for you and your insurer. One example of subrogation is **when an insured driver's car is totaled through the fault of another driver**. The insurance carrier reimburses the covered driver under the terms of the policy and then pursues legal action against the driver at fault. ***Subrogation*** is a term describing a right held by most ***insurance*** carriers to legally pursue a third party that caused an ***insurance*** loss to the ***insured***.

Answer 27

ANswer A. Flood Flood is alwayus excluded and needs a separate policy

Answer 28

Answer: valued basis Fine arts and antiques need an appraisal or agreed upon value. THe closest choice is “valued basis”

Answer 29

Cash-value life insurance has always provided consumers with a tax-free avenue of growth within the policy that could be accessed at any time, for any reason. But Congress has placed limits on the amount of money that can be put into these instruments, and all cash-value policies are now subject to what is the seven-pay test (also written as the "7 pay test"), which limits the tax benefits of cash-value withdrawals. Policies that fail this test are now classified as [_modified endowment contracts_](https://www.investopedia.com/terms/m/modified-endowment-contract.asp) (MEC).¹ This act created the MEC. Before this law was passed, all withdrawals from any cash-value insurance policy were taxed on a [_first-in-first-out_](https://www.investopedia.com/terms/f/fifo.asp) (FIFO) basis. This meant the original contributions that constituted a tax-free return of principal were withdrawn before any of the earnings. But TAMRA placed limits on the amount of premium that a policy owner could pay into the policy and still receive FIFO tax treatment. Any policy that receives premiums in excess of these limits automatically becomes a MEC. What Are the Likely Tax Consequences of an Early Withdrawal Under a MEC? Withdrawals are taxed similarly to those of a non-qualified annuity. **For withdrawals before the age of 59½, a penalty of 10% may apply**. As with traditional life insurance policies, MEC death benefits aren't subject to taxation Taxation of MECs Any loans or withdrawals from an MEC are taxed on a [_last-in-first-out_](https://www.investopedia.com/terms/l/lifo.asp) basis (LIFO) instead of FIFO. Therefore, any [_taxable gain_](https://www.investopedia.com/terms/t/taxablegain.asp) that comes out of the contract is reported before the nontaxable return of principal. Furthermore, policy owners under the age of 59.5 must pay a 10% penalty for early withdrawal.⁵ It should also be noted that the IRS has its own set of guideline premiums that must be met in order for cash value policies to retain their FIFO status.

Answer 30

What is Absolute Assignment in Life Insurance? In life insurance, the term absolute assignment refers to **the transfer of all interest, rights, and ownership of an asset** — in this case, the life insurance policy. This decision is irrevocable, which means it cannot be changed once it is in place.

Answer 31

Only a portion of the rights of the contract are assigned, until an obligation is fulfilled, such as collateral on a loan. The rights under the contract then revert back to the owner.

Answer 32

4 only. An insurable interest must only exist at time of policy inception for life insurance. An insurable interest does not have to exist at the time of loss. A policy can be issued to anyone with an insurable interest.

Answer 33

What is insurable interest in life insurance? “Insurable interest” means, in simple terms, that **someone would experience financial hardship upon your death**. This is a basic requirement for a life insurance contract: The person who is purchasing the policy needs to have an insurable interest in the insured person In order to purchase a life insurance policy on another person, a beneficiary-owner (a person, trust, or business) has to prove an insurable interest or financial dependency in the insured person. In any case, a beneficiary must have an [insurable interest](https://www.protective.com/learn/can-i-buy-a-life-insurance-policy-on-my-childs-mother-or-father) in the person who is being insured if they are purchasing insurance on that person's life

Answer 34

Answer: 2 and 4

Answer 35

unilateral contract, aletaory contract, condiitonal contract, or personal contract of adhesion

Answer 36

Protect against adverse selection

Answer 37

Yes hospice benefits are available for terminally ill persons You qualify for ***hospice care*** if you have ***Medicare*** Part A (Hospital Insurance) and meet all of these conditions

Answer 38

protects against reduction in income if less- than total disability. Will provide difference in new salary vs old salary.

Answer 39

Answer. $88K. ($150- 40k) = $110K x 80%

Answer 40

Answer C. The entire premium is paid for by the employee for a group universal life policy. Due to the cost , an employer rarely covers the full cost of this type of policy. An employee may be allowed to borrow against the plan. IT does provide permanent coverage

Answer 41

A..M. Best, S&P and Moodys

Answer 42

**Solution:** The correct answer is D. absolute liability In a situation where someone has undertaken activities or actions that bring about extraordinarily hazardous circumstances, the term that would best describe this situation is absolute liability.

Answer 43

**Solution:** The correct answer is B. Option "A" - The thing speaks for itself - no need to prove negligence. Option "C" - If a right has been waived, the company will be stopped from denying a claim. Estoppel is **a legal principle that prevents someone from arguing something or asserting a right that contradicts what they previously said or agreed to by law**. It is meant to prevent people from being unjustly wronged by the inconsistencies of another person's words or actions. Option "D" - The company representatives cannot change the contract.

Answer 44

**Solution:** The correct answer is D. The answer is “D”. It may be tempting to initiate the rollover to meet the client’s request, but you need to start at step 1 in the financial planning process. Establish who the client is, we don’t know if Grayson is married and his spouse should be included. You will also want address if you will be doing comprehensive financial planning including monitoring the plan.

Answer 45

**Solution:** The correct answer is C.

Answer 46

**Solution:** The correct answer is A. Reformation The ideal result here, because both parties agree, would be reformation. Rescission occurs when no agreement can be reached and is usually carried out by a court of law.

Answer 47

**Solution:** The correct answer is C. Today, more and more we are seeing cases presented on a comparative negligence basis. This allows one to collect even if one party did in some way contribute to the accident.

Answer 48

**Solution:** The correct answer is B. Option "A" - AD&D benefits are not taxable to the employee or employee's beneficiaries. Option "C" is false. Benefits would only be taxable if paid as an income stream. Then only the interest would be taxable. Option "D" - Premiums are always deductible to the employer, even if it is part of a key-person policy or pays to the employee. In a self-funded plan which is discriminatory, some or all of the benefits may be taxable to key employees. Employer-paid premiums for health insurance are **exempt from federal income and payroll taxes**. Additionally, the portion of premiums employees pay is typically excluded from taxable income. The exclusion of premiums lowers most workers' tax bills and thus reduces their after-tax cost of coverage

Answer 49

Noncontributory Insurance — **a plan of insurance for which the employer pays the entire premium and the employee does not contribute to premium payment**. **Solution:** The correct answer is A. Karen's total medical expenses are $4,225 ($75 + $350 + $3,800). She must pay the deductible of $250 plus $4,225 - $250 = 3,975 x 10% = 397.50 For a total of $647.50

Answer 50

**Solution:** The correct answer is A. (2 only) COBRA is extended to those that separate from services with the exception of dismissal for gross misconduct.

Answer 51

**Solution:** The correct answer is D. COBRA is designed to allow an individual to continue coverage for 18 months (29 months if they are disabled) while continuing premium payments themselves.

Answer 52

**Solution:** The correct answer is A. If the deductible has been satisfied, then Rodney has only the 20% of the $5,000 coinsurance amount to satisfy (5,000 x 20% = 1,000). This means that the insurer will cover **$11,225 (**$12,225 - $1,000).

Answer 53

**Solution:** The correct answer is B. $6,968 The only costs not includible as covered expenses are the phone calls and the glasses for $400. This amount subtracted from the total of $9,360 means that of the remaining $8,960: $8,960 - $250 = $8,710 × 20% coinsurance = $1,742 + $250 = $1,992 insured, which is below the out-of-pocket maximum of $5,000. $8,710 - $1,742 = $6,968 insurer.

Answer 54

**Solution:** The correct answer is A. All of the others are optional provisions for life insurance policies.

Answer 55

**Solution:** The correct answer is C. Option "A" - Homeowners does not pay for injury to the insured. Option "B" - Medical pay auto pays for the insured if he or she is injured "in, on, or about the covered auto." Here he was close, but not close enough. His personal health insurance (Option "C") will pay.

Answer 56

**Solution:** The correct answer is C. $5,750 - $250 = $5,500 × .20 = $1,100 + $250 = $1,350 for insured $5,750 - $1,350 = $**4,400 f**or the insurer Always take (Total Expenses - Deductible) × coinsurance %; not coinsurance × Stop Loss.

Answer 57

**Solution:** The correct answer is B. The IPA (Individual Practice Association) allows the greatest flexibility among HMO coverages.

Answer 58

**Solution:** The correct answer is C. The group model of the HMO is an arrangement that is sometimes known as the network model. Option "A" describes a staff model. Option "B" describes an IPA. Option "D" is incorrect as ALL HMOs employ gatekeepers.

Answer 59

**Solution:** The correct answer is C. The insured pays the $250 deductible. The remaining $4,450 ($4,700 - $250) is split, 20% paid by the insured ($890) totaling $1,140 ($250 + $890). The balance is paid by the insurer.

Answer 60

Solution: The correct answer is D. Incorporating is an example of risk sharing. Option "A" - Installing sprinklers is risk reduction, as is Option "B", protective clothing. Option "C" - Establishing a general partnership is risk sharing.

Answer 61

**Solution:** The correct answer is A. Risk transfer is the use of insurance. This should be done in the event of high severity (catastrophic) and low frequency (probable, but not often) losses that would wipe out one's financial resources.

Answer 62

**Solution:** The correct answer is B. Risk elimination is not a risk management technique. Risk retention and risk sharing are other techniques that may be used as risk management options.

Answer 63

**Solution:** The correct answer is B. If one is on disability and the company cancels the policy, coverage is still continued.

Answer 64

**Solution:** The correct answer is D. In the case of increased risk on a disability policy the insurer will generally reduce coverage to match what the premium will purchase at the new, riskier position.

Answer 65

**Solution:** The correct answer is C. Option "A" benefits would be taxable to the employee. Option "B" benefits would be taxable to the employee because they are employer paid and deducted premiums. Option "D" benefits are taxable but the premiums are tax deductible as a business expense. Note: A business overhead expense disability policy pays the insured's business overhead expenses if the insured becomes disabled. The policy is designed for small businesses that rely on one or two persons.

Answer 66

**Solution:** The correct answer is B. Disability premiums paid by the individual are received tax free; disability benefits paid by the C corporation are fully taxable upon receipt. Also, those benefits where the insured has paid the premium through a tax deductible plan (such as a cafeteria plan for group premiums) are taxable upon receipt.

Answer 67

Do you claim workers comp on taxes as taxable income? Regarding your question: do you claim workers comp on taxes, the answer is no. **You are not subject to claiming workers comp on taxes** because you need not pay tax on income from a workers compensation act or statute for an occupational injury or sickness.

Answer 68

**Solution:** The correct answer is C. Cancelable policies are not renewable. These are one-time temporary policies, not seen very often anymore and best avoided.

Answer 69

**Solution:** The correct answer is C. The probation period, when included in a Disability Income policy, is the time the insured must wait after the issue of the policy before specified conditions will be covered.

Answer 70

**Solution:** The correct answer is B. Option "A" - Any occupation would say you are employable even in the severest disabilities. Option "C" - Split definition uses own occupation to begin with and moves toward modified any occupation. This allows for training in a new field. Option "D" - Loss of income avoids having to define disability. **An any-occupation policy stands in contrast to an own-occupation policy that considers a policyholder disabled if they are unable to perform the same job as they did before an injury**. Employer-provided disability insurance may only be available as an any-occupation policy. Modified own-occupation: According to this definition, **a person receives benefits when they can't work in their own occupation and are totally disabled**. However, benefits do not continue if that person wants to work earning an income in another profession. Under own-occupation policies, coverage is provided to the insured even if they find work in a new profession as these policies do not come with such stipulations

Answer 71

**Solution:** The correct answer is A. At first, the insured is considered disabled if he or she cannot perform his or her specific occupation. After a period of time (usually 2 to 3 years), the definition is broadened to include any occupation to which the insured is fit to undertake based education or training.

Answer 72

1. Answer: I, III and IV only. **Solution:** The correct answer is B. Choice "II" is untrue because systematic risk cannot be diversified away. Choice "V" is untrue because beta measures systematic risk, and not all risk inherent (in this case diversifiable risk) is measured by beta.

Answer 73

**Solution:** The correct answer is D. If rates on the mortgage backed securities do not keep up with inflation and rising rates, their purchasing power will be reduced, as will their value (interest rate risk). If interest rates fall, the mortgagees may seek refinancing and prepay their obligations early.

Answer 74

**Solution:** The correct answer is A. This is due to the high coupon and lack of similar rates currently. A good visual to use in the bond chart in Lesson 6 under Yield Summary. If the YTM is currently 6.3% on an 11.625% coupon bond, the bond is trading at a premium, meaning investors are willing to pay more to purchase that bond than new ones issued at par with the current coupon rate (much lower than 11.625%).

Answer 75

**Solution:** The correct answer is C. In most states, it is a one or two-year period during which incontestable clauses and suicide clauses are in effect. Entire contract and ownership are not based on the passage of time.

Answer 76

**Solution:** The correct answer is A. Non-cancelable" policies are renewable on a guaranteed basis and the premium cannot be changed. All the others allow for a premium change, but the "guaranteed renewable" is the policy where if a rate change is made, it must be for an entire rate class.

Answer 77

**Solution:** The correct answer is D. Option "A" is indemnity. Option "B" is adverse selection. Option "C" is a unilateral contract.

Answer 78

**Solution:** The correct answer is D. All choices accurately describe the variable life contract. 1. Unilateral contract; it was drafted by one party. 2. Aleatory contract; means the policy values are uneven. The insured pays a small premium for a larger death benefit from the insurance company. 3. Conditional contract; conditions must be met to establish the policy (underwriting, health screening etc) and keep the policy (pay premiums). 4. Personal contract of adhesion; It is not a business contract, it is a policy on one person, making it a personal contract.

Answer 79

1. II and IV only. Option "I" - Medicare will not pay because the client has no possibility of recovery and this is a "must" to secure Medicare payment. Option "III" - Private medical insurance does not pay for custodial nursing home stays, except possibly in a convalescent situation. The clarification on why Option "III" above is incorrect in that a comprehensive major medical policy would pay for treatments for the arthritis, but not for the custodial care which is required because Fred cannot perform the functions of daily living (i.e., dressing, feeding, bathing, etc.)

Answer 80

**Solution:** The correct answer is D. The triggers for LTC benefits are the inability to preform 2 of the 6 ADLs; dressing, eating, bathing, transferring, toileting and continence. Benefits may also be triggered by severe cognitive impairments that require care to protect the individuals health and safety such as Senile Dementia, Alzheimer’s disease or Parkinson’s disease.

Answer 81

**Solution:** The correct answer is B. Options "A" - There is no coverage known a "intensive nursing care." Options "C" - Intermediate care is identical to skilled nursing care defined above, but not seen with as much regularity by a physician (not daily). Both Options "B" & "C" are institutional care, whereas Option "D" is not.

Answer 82

**Solution:** The correct answer is D. Continuing Care Retirement communities are structured specifically for Long-Term Care (LTC) coverage, as are the individual policies. Association arrangements are also LTC specific. These three all provide excellent means to obtain LTC coverage. The disability income policy rider takes a coverage that can no longer be carried after age 65 and converts it to useful LTC coverage, another excellent plan. The least favorable is to have diminished coverage that one will most definitely need at some point - life insurance.

Answer 83

**Solution:** The correct answer is D. The 10,000 share purchase of the 1,700,000 share initial offering was .59% (10,000 ÷ 1,700,000). That amount relative to this new offering of 850,000 shares was equivalent to 5,000 (850,0000 × .59%) shares if all preemptive rights were exercised. This 5,000 shares times the $87 offering price means that to fully exercise this right, Haley would require $435,000.

Answer 84

**Solution:** The correct answer is B. The ex-dividend date is one day prior to the date of record. An investor must purchase the stock the day before the ex-dividend date to receive the dividend. Therefore, an investor would have to purchase the stock two days prior to the date of record to receive the dividend.

Answer 85

**Solution:** The correct answer is D.

Answer 86

**Solution:** The correct answer is D. An office building is purchased to rent space; therefore, cash flow is of paramount importance. Net income without the information that leads up to this final figure is not as valuable as cash flow information. Resale, commissions and taxes are secondary concerns if the property is purchased (with an office building) for cash flow.

Answer 87

**Solution:** The correct answer is C. Options "A", "B", and "D" all describe equity REITs. Mortgage REITs are more volatile than equity REITs.

Answer 88

**Net operating income does not take into account all the fees and expenses that might accrue from the property as capital, including income taxes, mortgage payments, and amortization or depreciation** **Operating expenses include the costs of running and maintaining the building, including insurance premiums, legal fees, utilities, _property taxes_**, repair costs, and janitorial fees

Answer 89

**Solution:** The correct answer is D. Gross rental receipts ($650 × 60 × 12) = $468,000 plus non-rental income ($625 × 12) = $7,500 equals potential gross income (PGI) ($468,000 + $7,500) = $475,500. PGI minus vacancy and collection losses [$475,500 - (.08 × $475,500)] = $437,460 equals Effective Gross Income (EGI). EGI minus expenses equals net income $437,460 - $117,000 = $320,460. Next, determine net operating income by adding interest and depreciation expense back to net income. NOI = $320,460 + $72,000 interest + $0 depreciation = $392,460. Market value = $392,460 ÷ .09 = $4,360,667

Answer 90

**Solution:** The correct answer is A. An HO-6 policy does not provide coverage for the building or roof. The building and roof are covered by the condo association policy, which covers all exterior walls and roof. The HO-6 policy covers all interior walls for a condo.

Answer 91

Begin by dividing the actual amount of coverage on the house by the amount that should have been carried (80% of the replacement value). Then, multiply this amount by the amount of the loss, and this will give you the amount of the reimbursement.

Answer 92

**Solution:** The correct answer is B. The amount carried divided by the amount required (80% of current value) times the loss, minus the deductible equals the payment. One of the tricks on this one is that he purchased $80,000 of coverage initially (80% of the purchase price). So, the covered loss equals [$80,000 / (.80 × $160,000)] × $10,000 = $6,250. The insurer will pay $6,250 - $500 = $5,750.

Answer 93

**Solution:** The correct answer is B. Modified no-fault coverage is the plan where injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold is reached.

Answer 94

**Solution:** The correct answer is A. Options "I" and "II" are roles of an adjuster. Option "III" is incorrect because the classification is the underwriter's job. Option "IV" is incorrect because the adjuster determines the amount of loss. An arbiter would enter into the situation only if the two sides cannot agree.

Answer 95

**Solution:** The correct answer is D. HO-1 is almost non-existent basic coverage. HO-4 is renter's coverage. HO-6 is condominium owner coverage. HO-3 is special form coverage with open peril on coverage A and B. HO-5 (not listed) is comprehensive form coverage.

Answer 96

**Solution:** The correct answer is A. On homeowner policy forms where other structures are covered, the coverage is usually 10% of the dwelling.

Answer 97

**Solution:** The correct answer is B. This is the value of the entire package minus the value of the land (e.g., $150,000 - $40,000 = $110,000). Full replacement cost requires the full value of the property be insured (the house burned to the ground). For partial loss coverage, 80% of the value can be used (some fire or water damage, not a full loss).

Answer 98

**Solution:** The correct answer is B. Insurance is state regulated. Legislation is from legislature.

Answer 99

**Solution:** The correct answer is B. All the statements are true, but Options "A," "C" and "D" are disadvantages or at the very least, additional requirements placed on the self-insurer.

Answer 100

**Solution:** The correct answer is D. Medicare does not include any of the other items such as dental coverage. Nor does it contain any more than basic hospital coverage.

Answer 101

**Solution:** The correct answer is C. Since she was only currently insured Robert and Joy are not entitled to survivorship benefits. Her daughter is still eligible for benefits even though she is 18 because she is in high school. The rule is under age 18, under age 19 if still in secondary school (high school). Payments to a child will stop at graduation or age 19, even if still in high school. Social security allows a two month grace period when the child turns 19 if their birthday is before graduation, otherwise no payments will be made to a 19 year old child, dependent or not.

Answer 102

**Solution:** The correct answer is B. All of the choices are true with the exception of Option "B." Unless a state has reciprocity with another state, licensing is required in each state in which business is conducted.

Insurance Pre-Study Books Flashcards

(131 cards)