FIN 322 Test #2

Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, is the primary beneficiary, and their children, Mimi (age 24) and Ann (age 30), are the contingent beneficiaries. All three survive Marilyn. How will the policy proceeds be distributed?

$200,000 to Jack

A $100,000/$300,000 bodily injury liability automobile policy could pay up to a total of __________ to all injured victims in one accident.

$300,000

Advantages for Universal life insurance

- Flexibility: premium can be adjusted from year to year -Savings feature: credits cash value at the 'current' rte of interest and this current rate of interest may well be higher than the guaranteed minimum rate

. It is advisable to purchase life insurance from an insurance company that has been in business for at least _____ years.

25

Homeowners are eligible for reimbursement on a full replacement-cost basis only if they keep their homes insured for at least __________ of the amount that it would cost to build them today.

80%

Which of the following changes would tend to increase the premium on a disability policy?

A shorter elimination period

Which of the following represents a disadvantage of a whole life insurance policy?

A whole life insurance policy often provides lower yields than other investment vehicles

Deductible

Amount you must pay before you begin receiving any benefits from your insurance company

The best way to buy automobile insurance is through __________.

An insurance agent

A captive agent is:

An insurance agent who represents only one insurance company

Group life insurance is:

An insurance that provides a master policy for a group

The principle of indemnity will prevent:

An insured from collecting more than what he or she has lost

HO-1

Basic home - fire, hail, wind storm, theft, etc

Nonforfeiture rights guarantee that a policy owner will not lose his or her policy's _____.

Cash Value

If a term life insurance is convertible, the policy can be:

Changed to a comparable whole life policy

Section 2 Perils:

Comprehensive coverage for personal liability and medical payments to others

An increase in the amount of the deductible will __________.

Decrease the amount of insurance premiums

While using the needs analysis approach, we _____.

Deduct an individual's available resources from his or her family's total economic needs to calculate how much life insurance he or she requires

Section 1 Perils:

Dwelling, accompanying structures and personal property (Ho-1,2,3,4,5,6,8)

Insurance is a tool that can reduce one's _____ risk.

Economic

Some employers providing health insurance as an employee benefit offer only one plan and pay

Either all or part of the health care insurance premiums

Employers set up a salary reduction agreement with the employees if:

Employees need additional insurance benefits

Negligence occurs when someone:

Fails to act in a reasonable manner

The primary purpose of life insurance is to provide:

Financial security for dependents in the event of death

Standard homeowner's policies will not include coverage for damage done by __________.

Flood

Which of the following policy features allows the insured to increase coverage periodically without showing proof of insurability?

Guaranteed purchase option

Which of the following is a basic, seldom-used homeowner's policy with very narrow coverage?

HO-1

Which of the following homeowners' policies provides coverage for damage caused by electrical current?

HO-2

Which of the following homeowners' policies provides coverage for the damage caused by the accidental discharge of water or steam?

HO-2

Which of the following homeowners' policies is best suited to a renter of an apartment?

HO-4

The __________ is a good homeowner's policy for a condominium owner.

HO-6

Which of the following is true of the health care industry?

In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan

A(n) _____ policy is a contract between an individual and a company under which the company agrees to reimburse the individual for losses suffered by him or her according to specified terms.

Insurance

In order to predict the number of losses that will occur in a given time accurately, insurance companies must study a ___________ numbers of cases.

Large

You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you will need life insurance for the rest of your life. You should choose a _____ insurance.

Limited payment whole life

The insurance designed to help with nursing home or in-home care due to chronic illness is called:

Long-term care

The probability of a loss occurring can be reduced by_____.

Loss Prevention

___________ is an activity that reduces the chance that a loss will occur.

Loss Prevention

The settlement option chosen by most policyholders is:

Lump sum

A good health insurance plan embodies more than financing medical expenses, lost income, replacement services; it incorporates ___________.

Means of risk reduction such as risk avoidance

It is not possible to avoid ___________.

Most risks in your life

If you are laid off, your group health insurance ___________.

Must be continued if you pay the premiums

A life insurance policy can be structured so that death benefits are paid directly to a(n) ___________, which means that creditors cannot claim the cash benefits from the life insurance policy.

Named beneficiary

The _____ method is the most accurate method of determining the amount of life insurance coverage needed for an individual.

Needs analysis

The most accurate way to determine how much life insurance you need is to use the ___________ method.

Needs analysis

Difference between HMO and PPO

PPO provides coverage for services not provided by network but will pay a higher price

The basic purpose of insurance is to _____.

Protect yourself from economic losses

Coverage under underinsured auto insurance

Protects against damages caused by being in an accident with an underinsured motorist who is found liable

The personal property floater:

Provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowners' policy

Long-term care Insurance

Provides payment for extended nursing care due to accidents, illness, or old age

___________ is the choice to accept and bear the risk of loss.

Risk Assumption

_____ involves abstaining from any activity that will affect an individual financially.

Risk Avoidance

The purchase of insurance is a common form of _____ by the insured.

Risk Transfer

Which of the following is true of risk avoidance?

Risk avoidance is any activity that helps evade an act that creates a risk

The insurance portion of a universal life policy is most analogous to:

Term Insurance

Which of the following types of insurance policies provides temporary coverage for a set period?

Term life insurance policy

Which of the following is true of a good insurance agent?

The agent is recommended by professionals like bankers and attorneys

Which of the following statements is true of the health reimbursement account (HRA)?

The amount of unused money in the health reimbursement account can be rolled over annually

Replacement-cost coverage is the reimbursement of:

The cost of repairing or replacing damaged structures without deducting physical depreciation

Underwriting refers to _____:

The determination of which exposures o insure

_____ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.

The needs analysis method

One of the key goals of the Affordable Health Care Act of 2010 is:

To reduce the number of uninsured citizens in the country

From the standpoint of a person buying insurance, the central purpose of insurance should be:

To transfer the risk of serious losses

In order to qualify for disability insurance under Social Security, a person must be:

Unable to carry out the duties of any job

Which of the following is true of insurance underwriting?

Underwriters design rate classification schedules so that people may pay premiums that reflect their chance of loss

By ___________, insurance companies decide who will be insured by them.

Underwriting

Insurance companies use _____ to determine whom they will insure and what they will charge for the coverage.

Underwriting

It can be difficult to evaluate the true cost of a _____ at the time of purchase.

Universal life insurance

Dependent children ___________ will usually be covered by your health insurance policy.

Up to a stated maximum age

The death benefit of a(n) _____ life insurance policy may go down because of poor investment returns.

Variable

A _____ is standard in disability income policies.

Waiver of premium

HO-3

most commonly purchased policy // open perils policy that covers any DIRECT DAMAGE TO HOUSE OR OTHER STRUCTURES ON PROPERTY unless it is specifically excluded. INCLUDES PEOPLE INJURIES

HO-4

renters insurance

Types of Insurance discounts

- Good student - Loyalty to insurance company

Disadvantages to Universal life insurance

- changing premiums protection level - charges or fees

Disadvantages to Whole life insurance

- cost - less death protection per premium dollar than term

Disadvantages to Term life insurance

- only temporary coverage - increased premiums if you're older

Advantage for Whole life

- premium payments contribute toward building an estate, regardless of how long the insured lives - budget premium payments over a period of time -earning build up on a tax-sheltered basis

Consideration when selecting an Insurance agent

- recommendations from other professionals - don't assume that just because their licensed that they're competent and will serve your best interests -observe how they react to your questions

Considerations when selecting an Insurance company

-A firms reputation -financial history -commissions and other fees -specifics of their policy provisions

Advantages for Term life insurance

-options for purchase for various time periods -lower premiums that other types -has an option to renew

A grace period permits a policyholder to retain full death protection even though the premium has not been paid for:

31 days

Universal life insurance is:

A combined investment plans and insurance policy

HMO

A group plan offering prepaid medical care to its members, has a monthly fee

A higher home insurance cost may result from:

A low credit score of the insured

___________ is a health care plan that emphasizes cost control and preventive treatment.

A managed care plan

An exclusive provider organization (EPO) is _____.

A managed care plan that reimburses members only when affiliated providers are used

Which of the following statements is true of medical insurance costs in the U.S.?

A poor demand and supply distribution of healthcare facilities and services have increased the healthcare costs

Premium

A specific sum of money paid by the insured to the insurance company in exchange for financial protection against loss.

Group life insurance is most likely to be for ___________.

A term

Disability Insurance

A type of insurance paid to an individual if he/she is injured and is unable to work for a specified length of time.

A supplementary medical insurance (SMI) provides health care protection beyond the basic hospital coverage for:

Anyone age 65 or over who pays premiums on a voluntary basis

Auto insurance is needed primarily:

As protection against potential liability claims

The most preferred technique for determining how much life insurance coverage is needed for an individual is:

Assessing the family's total economic needs and subtracting the financial resources available to meet those needs

A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the ___________.

Chartered Life Underwriter

An insurance company assigns more complex loss cases to a __________.

Claims adjustor

Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy.

Continuous whole life

A personal liability umbrella policy typically includes:

Coverage for auto-related liability losses in excess of the limits purchased in the automobile insurance

Comprehensive automobile coverage refers to:

Coverage for damage to an insured vehicle from perils (with a few exceptions) other than collision

Comprehensive auto insurance

Coverage that protects against loss to an insured vehicle caused by any peril OTHER than collision

_____ and _____ are both relatively expensive types of decreasing term life insurance.

Credit life; mortgage life

Medicare coverage

Federal program run by the Social Security Administration for people ages 65+, provides basic hospital, prescription drugs, and supplementary medical insurance

_____ can be both an advantage and a disadvantage of universal life insurance.

Flexible premiums

Families faced with the loss of a principal wage earner receive Social Security benefits _____.

From the government that are intended to provide basic, minimum support

Employers often provide _____ life insurance as a fringe benefit for their employees.

Group

Ben's (aged 40) health coverage charges a low ($15) deductible each time he visits a doctor or hospital. Other than the low per-service deductible, there is very little cost sharing. However, Ben has the advantages lack of deductibles, few or no exclusions, and not having to file insurance claims. Which of the following most likely provides Ben's health coverage?

HMO

During the past few decades, the percentage of our income spent on health care:

Has increased due to an aging US population

One drawback of long-term-care insurance is its:

High annual premiums

Medicare is a government-sponsored health care plan composed of Part A and Part B. Part B covers ___________.

Imaging, laboratory tests and prosthetic devices

The primary purpose of a life insurance plan is to help:

In the protection of the dependents of the insured from financial loss of his or her untimely death

A(n) __________ agent represents multiple insurance companies.

Independent

___________ insurance is a type of insurance that is issued in policies with small face amounts, often $1,000 or less.

Industrial life

A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _____.

Industrial life insurance

Even though homeowners are eligible for reimbursement on a full replacement-cost basis if they keep their homes insured for at least 80 percent of the amount that it would cost to build them today, __________ can cause the actual amount of coverage to fall below 80 percent.

Inflation

Medicare is a government-sponsored health care plan composed of Part A and Part B. Part A provides ___________.

Inpatient hospital services

The first step in buying property and liability insurance is to develop a(n) __________.

Inventory of exposures to loss

An individual receiving health care:

Is allowed to receive multiple payments from more than one insurance company for this care

It pays to comparison shop for insurance policies because of the __________.

Large variations in premiums and services

Medicare and Medicaid cover ___________.

Less than half of the total cost of long term care

___________ is any activity that lessens the severity of loss once it occurs.

Loss control

Group health insurance premiums are _____.

Lower than an employers health insurance plan premiums

Which of the following is true of long-term care insurance?

Many policies offer inflation protection riders for an additional premium

Which of the following is a public assistance program that provides health insurance benefits only to those who are unable to pay for health care?

Medicaid

Which of the following is a characteristic of a universal life insurance policy?

No choice in how the accumulation account is invested

Which of the following leads to the payment of a higher insurance premium by the potential insured?

Obesity of the potential insured

Workers' compensation insurance will make compensation payments to an injured worker _____.

Only if he cannot prove negligence on the part of his employer

Insurance companies make profit by:

Paying out less than the sum of the premiums and the earnings on them

A personal liability umbrella policy is more likely to be opted for by __________.

People with high incomes and high net worth

PPO

Preferred provider organization. A prepaid health insurance plan in which providers agree to deliver services for discount fees; patients can go to any provider, but using nonparticipating providers results in higher costs to the patient

Term life insurance is characterized by _____.

Premium amounts related to the age of the insureds

Disability income policies usually have a(n) _____, which is a time delay from the date of the issuance of the policy until benefit privileges are activated.

Probationary period

A coordination of benefits provision in a health care policy ___________ by collecting benefits in multiple payments for health care.

Prohibits collecting more than 100% of covered charges

The community rating approach to health insurance premium pricing _____.

Prohibits insurance companies from varying rates based on health status or claims history

Coverage under uninsured auto insurance

Protect the needs of the "innocent" victims of accidents who are negligently injured by uninsured, underinsured or hit and run

Donna, who is single and 30 years old, received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2002 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance?

Raising her deductible from $250 to $1,000

A ___________ covers the cost of visits to a doctor's office or for a doctor's hospital visits, including consultation with a specialist.

Regular Medical Expenses Insurance

To purchase a personal liability umbrella policy, the insured party must already have __________.

Relatively high liability limits on their homeowner's and auto coverage

An insured individual's right to continue a health insurance policy if he or she chooses is known as:

Renewability

A(n) _____ is a common provision in many term policies.

Renewable clause

Co-Insurance

Requires the insured individual to pay a fixed percentage of the loss after the deductible has been paid

___________ is an effective way to handle small exposures to loss when insurance is too expensive.

Risk Assumption

When trying to determine your disability income needs, you should consider your available disability benefits from employers, income needs, and:

Social Security Benefits

Funds for Medicare benefits come from:

Social Security taxes paid by covered workers and their employees

. You can learn about the financial strength of an insurance company by checking ___________ rating system.

Standard & Poor's

Medicaid coverage

State run, public assistance program providing health insurance benefits only to those unable to pay for healthcare

A(n) _____ policy is a type of term insurance.

Straight term

A personal liability umbrella policy is designed to __________.

Supplement homeowner's insurance coverage

Which of the following statements is true of the Affordable Health Care Act (ACA)?

The ACA eliminates lifetime limits on total healthcare insurance payments by insurers

The purchasing power of income from a long-term disability policy is protected by _____.

The Cost of living adjustment (COLA) provision

A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary, which means that _____.

The cash benefits from your life insurance policy cannot be claimed by creditors

The underwriting function of insurance companies is designed to ensure that premiums are based on_____.

The chance of losses

___________ represents the initial amount that's not covered by the policy and thus must be paid by the insured.

The deductible

Long-term care is a term used to describe _____.

The delivery of medical care to persons with chronic medical conditions in nursing home

Section I of a homeowner's insurance policy covers:

The dwelling, accompanying structure and the personal property of the insured

While performing needs analysis, when determining the available resources to offset the economic needs, you would generally ignore:

The educational qualification of the children

When purchasing a long-term-care policy, ___________.

The guaranteed renewability provision is recommended

In a traditional indemnity (fee-for-service) plan,:

The healthcare provider and the insurer are separate

An insured does not get the right to arbitration when:

The insurance company denies responsibility for the loss

When insuring property, people need to consider not only replacing and restoring the actual property in the event of a loss, but also __________.

The liability arising from the inured's responsibility for property loss

The liability coverage under a personal automobile policy is provided to:

The non-family members involved in the accident

A homeowner's policy does not provide protection for:

The personal property of tenants

At the scene of an accident, the police are only responsible for assessing __________.

The probability of a law violation

Insurance underwriting is best described as:

The process by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums

Subrogation

The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.

Insurance companies use actuarial data to measure:

The risk of loss for a given population

People under the age of 65 years are covered by Medicare health insurance plan if:

They receive monthly Social Security disability services

Employees should consider risk assumption for certain health risks because:

They would rather pay small amounts from savings than higher premiums to cover them

The policy owner assumes the investment risk with a ___________ insurance policy.

Variable life

Sales commissions and marketing expenses can increase the costs of a fully loaded _____ policy.

Whole life insurance

Disability income insurance will provide income to a disabled or ill person ___________.

With a waiting period before income is received

Which of the following is true of the workers' compensation insurance?

Worker's compensation insurances compensates workers who are injured on the job or become ill through work related causes

Collision auto insurance

collision damage to an insured vehicle regardless of who is at fault

HO-6

condominium insurance

Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What is the amount of insurance, as per the needs analysis method, that Jonathan should purchase if he has current financial resources worth $1,000,000?

$1,000,000

The maximum coverage under most dental policies is often in the range of _____ per patient.

$1,000-$2,500

Michael's estimated current monthly take-home pay is $4,500. His total existing monthly benefits is $2,950. Michael's estimated monthly disability benefits is _____.

$1,550

Patrick's monthly take-home pay is $5,000. His net worth is $125,000. He estimated that he would receive Social Security benefits worth $1,000 and company disability benefits $2,000 if he becomes disabled. The additional disability benefits that he needs to arrange for equals _____.

$2,000