FIN 364
Quinton is fed up with his supervisor and decides his health will improve if he retires early. Quinton is 62 years old, and his normal Social Security retirement age is 66. If he retires today, and his normal age retirement PIA is $1,500, how much can Quinton expect to receive as a monthly retirement benefit?
$1,125
Reese's stereo was stolen. The stereo cost $3,000 when originally purchased. A similar new stereo now costs $2,400. Assuming the stereo was 50% depreciated, what is the actual cash value of Reese's loss?
$1,200
Benjamin retired at age 62 and began to collect Social Security benefits. After a year of playing three rounds of golf a day, Ben is a bit bored and decides to go back to work part time. In 2020 (when Benjamin is age 63) he earns $28,240 at his part time job. His Social Security benefit before any adjustments for 2020 is $18,000. What will his actual Social Security benefit be for 2020?
$13,000
Rochelle worked hard throughout her life and saved enough retirement assets to allow her to delay retirement under Social Security such that, rather than receiving the $2,200 PIA amount at her full retirement age, she was able to receive $2,904 due to delayed retirement credits. Rochelle died this year and her spouse, who has reached full retirement age and is receiving a benefit of $2,100 based on his own work record, would like to know the amount of Social Security he will now receive. Which of the following is the correct amount?
$2,904
Devish has an HO3 policy with $100,000 of coverage under Coverage E, liability. He also has an umbrella liability policy for $2 million, which requires underlying liability coverage in the homeowners policy of $250,000. Devish's friend slipped on the icy steps when coming to visit and sustained serious injuries, resulting in a liability claim of $800,000. What amount will be covered by the umbrella policy?
$550,000
Zuko's stereo was stolen. The stereo cost $1,500 new but has a fair market value of $750. If Zuko has a homeowners policy that covers losses for personal property for ACV, what amount is Zuko entitled to recover?
$750
Rizzo has a replacement cost homeowners policy. The value of the home is $450,000, and she carries $350,000 of insurance. How much would the insurance company owe her in the event of a $100,000 loss due to fire (without regard to a deductible)?
$97,222
Which of the following statements concerning the characteristics of disability income insurance is (are) correct? 1. During the elimination period, disability income benefits are not being paid. 2. During the elimination period, partial disability income benefits are paid.
1
Which of the following can be found in the Summary of Benefits and Coverage for a qualified health plan? Cost-sharing provisions of the coverage, including deductible, coinsurance, and copayment obligations. An internet address (or other contact information) for obtaining a list of the network providers, and Internet address where an individual may find more information about the prescription drug coverage under the plan. Any exceptions, reductions, or limitations on coverage.
1, 2 and 3
Tamara is a 55-year-old widow with no source of income. Her husband just died and she has received insurance proceeds from a policy on his life. She wants to invest in an annuity that will produce income starting today and continuing until she plans to collect Social Security, at age 65. She wants to receive the most she can in monthly income. Which of the following is the most suitable annuity for Tamara based on her objectives?
10 year term certain fixed annuity
Which of the following statements concerning the characteristics of disability income insurance is (are) correct? 1. A residual benefits clause preserves the purchasing power of the insured's disability income benefits. 2. For a policy with a cost of living rider, an adjustment is made for each year of benefits paid to the insured and is often calculated by using the same rate of change as the Consumer Price Index.
2
Which of the following is(are) among the logical guidelines for planners and clients to follow in selecting property/casualty and health insurance coverages? Insure against losses that are highly likely to occur. Consider the risk tolerance (subjective risk) of the client. Purchase individual coverages first, supplementing them with group and social insurance coverages.
2 only
Which of the following statements concerning the Social Security system is (are) correct? 1. Workers entitled to retirement benefits can currently take early retirement benefits as early as age 59½. 2. The worker who takes early retirement benefits will receive a reduced benefit because he or she will receive more monthly benefit payments, as payments commence earlier than if the worker had waited and retired at full retirement age.
2 only
A chronically ill person is entitled to receive benefits under a long-term care policy and is defined as someone who is unable to perform _______ activities of daily living for a period of at least ______ days.
2; 90
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:
31 days
In July and August of this year, Jordan worked full time at a local accounting firm. Jordan is a 19-year-old accounting student attending a state university and does not work during the rest of the year. Over the summer, Jordan earned a total of $9,500. How many quarters of coverage has Jordan attained for Social Security purposes based only on this year's earnings?
4
Generally, how long does a fraud alert last?
90 days
Which of the following property is covered under the personal property coverage (Coverage C) of HO-3?
A skateboard owned by stepchild of living named insured
Homeowners policies provide coverage for losses from which of the following?
ALL OF THE ABOVE Fire or other listed perils loss of use personal property
Alex (who will turn age 65 in 3 months) is married to Norma (age 65), and they have 2 children, Piper and Stella. Since Alex and Norma were married later in life, Piper (age 19) and Stella (age 21) are both under age 24 and are currently enrolled in college. Alex worked for a large automobile manufacturer and participated in several employee benefit programs, including an employer sponsored health insurance plan. Alex 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?
Alex can elect to continue to purchase coverage for his children under his employer's group plan for up to 36 months.
When must an insurable interest exist for a life insurance policy?
At inception of policy
How are Social Security retirement benefits taxed?
Based on the individual or couple's MAGI and half of their Social Security benefits.
All of the following statements concerning whole life insurance are correct EXCEPT:
Because the premium rate for an ordinary life contract is calculated on the assumption that premiums will be payable throughout the whole of life, the highest premium rate for any type of whole life policy is produced.
Which of the following statements concerning a personal auto policy's (PAP's) Part A-Liability coverage is (are) correct? 1. Part A of the PAP provides bodily injury and property damage liability protection to any insured that is legally responsible for an automobile accident. 2. The insurer agrees to pay defense costs until the limit of liability has been exhausted by payment of judgments or settlements.
Both
Which of the following statements concerning long term care is (are) correct? 1. Private medical expense insurance policies, in some cases, provide coverage only if a person also needs medical care; however, benefits are not provided if one's need for custodial care is due solely to the insured's advanced age. 2. Medicare is inadequate for long-term care, in that it will not cover custodial care, if that is all that is needed.
Both
Which of the following statements concerning the Social Security system is (are) correct? 1. To qualify for retirement benefits, a worker must be "fully insured," which means that a worker has earned a certain number of quarters of coverage (credits) under the Social Security system. 2. Earning a designated amount of money, regardless of when it was earned during the year, will credit the worker with a quarter of coverage (credit) for that year.
Both
The Social Security tax on payroll is a matching tax, meaning that:
Both workers and their employers pay the Social Security tax based on the workers' earnings.
All of the following are activities of daily living (ADL's) for long-term care purposes EXCEPT:
Cooking
Which of the following is not an advantage of a credit card?
Credit cards generally have higher intent rates than other sources of credit
What law provides that U.S. citizens have free access to their credit scores?
Fair credit reporting act
Adrian has spent much of his hard earned after school job money on enhancing the performance of his "import" car. Even though he was drag racing when the damage to the car occurred, his auto policy should cover the damage, after the deductible.
False
Coverage of a detached structure, such as a garage, is generally insured up to 30 percent of the dwelling.
False
Dianne, who has a large collection of rare jewelry valued at $250,000, has a standard homeowners policy. It should provide adequate insurance protection for her jewelry collection.
False
Gender is not a relevant factor that impacts the cost of an LTC policy.
False
Having a credit utilization of zero is a positive factor on a person's credit score.
False
Implied authority is when a third party believes implied or express authority exists, but no authority actually exists.
False
There are only seven variations of credit scores.
False
There is an income tax deduction available for estate tax attributable to IRD assets. This deduction is an above-the-line deduction.
False
he Medicaid look back period extends to six years.
False
Glen is 85 years old and is covered by Medicare Part A and Part B. While walking down the stairs at his home last week, Glen fell and broke his hip. All of the following medical expenses will be covered under Part A of Medicare EXCEPT:
Follow up visits to his primary care physician after Glen's recovery.
Ross owns an annuity. He decided that he no longer has a need for it and wants to exchange it for a life insurance policy. To get the policy he wants, he will have to exchange the annuity and add additional money. Which of the following is correct?
He can make the exchange, but it will be taxable to the extent of the value of the annuity
J.R. died suddenly at the age of 42, leaving behind his wife, SueEllen (age 44) and his six-year-old son, Bobby. J.R. and SueEllen had been married for 15 years. All of the following statements concerning Social Security benefits available to the family are correct, EXCEPT:
J.R. died suddenly at the age of 42, leaving behind his wife, SueEllen (age 44) and his six-year-old son, Bobby. J.R. and SueEllen had been married for 15 years. All of the following statements concerning Social Security benefits available to the family are correct, EXCEPT:
General exclusions to losses contained in all homeowners policies include all of the following EXCEPT:
Malicious Mischief
Which of the following is an available combination of Medicare and Medigap insurance?
Medicare Parts A, B, D, and Medigap.
Phyllis is 68 years of age and is covered by traditional Medicare. Unfortunately, while travelling in a foreign country, Phyllis broke her ankle and had to go to the hospital emergency room. Which part of Medicare will cover the emergency room fees?
Medicare will not cover the emergency room fees.
Mehul recently turned age 65 and enrolled Medicare. His spouse is age 62 and has never worked or paid Medicare taxes. Which of the following is true regarding Medicare for Mehul's spouse?
Mehul's spouse can enroll for Medicare at age 65.
Kenan is 75 years old and is covered by Medicare. In 2020 he had spinal fusion surgery to correct problems caused by three ruptured disks and was transferred to a skilled nursing facility for rehabilitation after recovery in the hospital. If Kenan remained in the skilled nursing facility for 30 days, how much will he have to pay as a coinsurance amount?
NOT $0
Bruce is single, retired, and received Social Security benefits of $18,000 this year. His other income consists of $15,000 from his former employer's pension plan; $10,000 in tax-exempt municipal bond interest; and $1,000 in dividends. How much of Bruce's Social Security Benefit will be subject to income tax?
NOT $15,300
Derek's mother has received 100 days of skilled nursing care following a hospitalization. Derek's mother is 88, is in failing health, and will continue to need care for the foreseeable future. Medicare has helped to pay for the hospital and skilled nursing care expenses for Derek's mother. What can Derek expect will be paid by Medicare for the additional care required for his mother?
NOT Medicare will pay for custodial care only when prescribed by a physician.
Which of the following concerning the Social Security earnings test is correct?
NOT all of the above OR It applies to all retirees receiving Social Security benefits.
Which of the following statements concerning Social Security benefits is (are) correct? 1. If an individual receives retirement benefits based on his spouse's earnings record, his benefits will cease upon his divorce from her, unless he is 62 years of age or older and he was married to that spouse for at least 10 years. 2. Widows and widowers will continue to receive survivors benefits upon remarriage if the new marriage occurs when the widow or widower is 60 years of age or older.
NOT 1 only Or Neither
Karma Kamilyon has a personal auto policy (PAP) that covers the sleek new convertible she recently purchased. If Karma's convertible is damaged when she collides with a deer, which part of the auto policy will cover the damage?
NOT B or A
Which of the following losses in not covered by a standard homeowners policy?
Personal vehicle
Which of the following individuals most likely has the highest credit score?
Phones has 2 credit cards utilization of 15% an installment loan, a mortgage, and a perfect payment history for 3 years
Latka just learned that he is a victim of identity theft. What should he do to minimize the damage?
Place a fraud alert with the credit reporting agencies
A health savings account (HSA) and a flexible savings account (FSA) have several similarities including:
Pre-tax contributions
The U.S. Department of Justice uses what acronym to assist the public in avoiding identity theft?
SCAM
Danny and [SD1] Sandy have come to your office to discuss some retirement planning issues. Danny will be turning age 65 in five months and Sandy is currently 63. Danny hasn't started collecting Social Security benefits yet because he is still working, and he is unsure whether he will retire this year or wait a few more years. Sandy has never worked outside the home. As long as he continues to work, Danny will have health insurance for both himself and Sandy through his employer with a $250 annual per person deductible, a 90% coinsurance, and a maximum out-of-pocket limit of $5,000. Danny's share of the premium is $50 per pay. Many of their retirement questions have to do with Medicare and health insurance because both Danny and Sandy have existing health issues. All of the following statements are proper advice for you to give Danny and Sandy, EXCEPT:
Sandy will be eligible for Medicare as a spousal benefit when Danny turns age 65.
To qualify for Social Security Disability Income benefits, which of the following rules applies?
The disability must be expected to last at least 12 months or result in death
Jack and Diane are married. Upon Jack's death, and assuming they have been married long enough to qualify, which of the following Social Security benefits will Diane continue to receive?
The higher of either benefit but not both.
To determine Social Security retirement benefit, the Social Security Administration considers the amount ofmoney the worker earned over what time frame?
The highest-earning 35 years.
An owner/insured of a viatical settlement is not subject to income tax on the capital gains of the policy if:
The individual is terminally ill
In her application for insurance on her own life, Dolores understated her age by two years in order to obtain a lower rate. At her death, the misstatement of age provision in a life insurance policy will result in which of the following?
The payment of death proceeds that the premium paid would have purchased if the age had been correctly stated.
If a worker has employment earnings after starting Social Security retirement benefits at full retirement age, which of the following is correct?
There is no reduction in Social Security benefits
Today, many long-term care policies are treated as tax-qualified contracts. Which of the following is not correct regarding tax-qualified long-term care contracts?
These policies can be provided under an employer sponsored cafeteria plan
Ace worked at Ventura Company for 18 years. He was terminated after taking his pet to work. Ventura provided health insurance. The premium for the group is $1,000 per month. Ace would like to continue the health care coverage under COBRA. Ventura could charge him as much as $1,020 per month.
True
Adding a term certain feature to an annuity with a single life term will cause the benefit payment to decrease.
True
Dishonesty by the insured has the potential of voiding the policy.
True
Equity-indexed annuities are beneficial since the earnings may be positively impacted by increases in the equity market, but without market risk. However, these annuities will often have cap rates that limit equity performance participation.
True
Life insurance companies may use an applicant's credit score to determine affordability of a policy.
True
Nuclear hazard is a general exclusion to most homeowner's policies.
True
The biggest factor influencing both a person's FICO score and VantageScore is a person's payment history.
True
The personal liability umbrella policy (PLUP) is designed to provide a catastrophic layer of liability coverage on top of the individual's homeowners and automobile insurance liability coverages.
True
The term for annuity benefits can be based on a single or a joint life
True
With a partnership qualified LTC policy, individuals may be able to keep more assets than the maximum amount normally permitted by Medicaid and still qualify for benefits under Medicaid.
True
The two most well-known credit scores are?
Vantage and FICO
Which of the following sources of income count towards the retirement earnings limitation?
Wages
Which of the following is not an element of the Principle of Utmost Good Faith?
Waiver
Tina, a single 37-year-old, wants to invest in the stock market on a tax deferred basis from now until she retires. She believes that the stock market will fluctuate up and down over time, but over the long-term will be significantly higher than it is today. She does not want to pay for product features that she does not value. What type of annuity is most suitable for Tina?
a flexible premium variable annuity
Homeowners policies have limits for items such as rare coins and jewelry. Which of the following should an insured homeowner consider obtaining if they have significant investments in these items?
a scheduled personal property endorsement
A credit report includes which of the following? 1. Any information from collection agencies. 2. Delinquency information and other negative items such as late payments. 3. Any public record information from state and other courts, including liens, garnishments, legal suits and judgments, foreclosures, and bankruptcies.
all
The standard form of the homeowners policy Coverage C excludes which of the following?
animals, birds and fish
Which of the following statements comparing annuities to life insurance is (are) correct? 1. The primary function of life insurance is to create an estate or principal sum; the primary function of an annuity is to liquidate a principal sum, regardless of how it was created. 2. Both life insurance and annuities protect against loss of income - life insurance furnishes protection against loss of income arising out of premature death; an annuity provides protection against loss of income arising out of excessive longevity.
both
Which of the following statements concerning annuities is (are) correct? 1. A flexible premium annuity allows the insured the option to vary premium deposits; whereas, an annuity purchased with a single lump sum is known as a single premium annuity. 2. An immediate annuity is one whose first payment is due one payment interval from its purchase date, whereas, a deferred annuity provides income at some date in the future.
both
Which of the following statements concerning the reduction of Social Security benefits is (are) correct? 1. Besides early retirement, there are two other situations in which beneficiaries can have their benefits reduced: through the retirement earnings limitations test and through taxation of benefits. 2. A person generally can continue to work even though he or she is considered "retired" under Social Security; however, those earnings for a person under normal retirement age must not exceed certain limitations or they will result in a reduction of Social Security benefits.
both
Which of the following is correct about other uses of credit history?
cell phone companies check credit history to help determine the plans a person may be eligible for
Judd must pay the full balance on his card every month. What type of card does he have?
charge card
Which of the following clauses states that full payment of damages to structures under the homeowners policy will be made only if the insurance equals 80 or more percent of the replacement cost of the structure and is carried on the property at the time of the loss?
coinsurance clause
Annuities are financial products that solve a variety of problems. Which of the following problems can an annuity not help to resolve?
dying prematurely
Annuities have a variety of features and benefits. Which of the following types of annuities allows for investment returns that are exposed to the stock market, but has a minimum rate of return?
equally indexed annuity
Lydia, who is nearing retirement, understands that the stock market can provide higher returns than found with fixed income securities. She would like to have the value of her investment increase if the equity markets increase. However, she is very concerned about losing the value of her "nest egg." In addition, she is concerned about running out of money. Which of the following investments is the best choice for Lydia given her concerns?
equity indexed annuity
FICO scores are an indication of a person's credit worthiness. Colie has a score of 810. How would you characterize the score?
exceptional
The FICO score ranges from 200 to 800, with 800 being a perfect score.
false
The three parties to an annuity contract are the annuitant, the beneficiary and the agent.
false
Equity-indexed annuities have several different indexing methods. Which of the following is one of them?
high watermark method
Which of the following is an example of a secured loan?
home mortgage
Ginger purchased a single-premium deferred annuity twenty years ago at age 45. She used $60,000 of after-tax funds she had accumulated over fifteen years. At age 65, she decides to annuitize over her single life expectancy (expected to be 20 years). Her annuity payment equals $750 per month. Her expected total payments are for 240 months. Which of the following statements is correct?
in the event that she dies prior to 20 years she can claim a miscellaneous itemized income
Where do most people receive long-term care services?
in their home
Avery does not want to miss out on the expected growth of the stock market. However, he wants to have protection against the loss of his principal. He expects to contribute to an annuity over the next twelve years. What annuity is best suited for Avery?
indexed annuity
Which of the following is not a category of property risk?
loss of value from economic obsolescence
Barb has a credit score of 650. She wants to improve her credit score before buying a house. What can she do to improve her credit score?
make consistent timely payments
The FICO score calculation includes all of the following, except:
salary increases
Robin's employer sponsors a group health insurance plan and a health care flexible spending account (FSA). This year (2020), Robin contributed $1,000 to the FSA. Her out-of-pocket copayments and deductibles for medical and dental care were $950, and she spent $50 to purchase aspirin and over the counter cold remedies in preparation for the cold and flu season. Which of the following statements concerning Robin's FSA is correct?
Based on her expenses to date, Robin's FSA would reimburse her $1,000 if she timely filed for reimbursement.
Insurance contracts are aleatory contracts, which is a "take it or leave it" contract. The insured has no opportunity to negotiate the terms of the contract.
False
Pat and Sam were just divorced. Pat had insurance from Sam's employer. As a result of the divorce, Pat can continue with the same insurance coverage for 29 months under COBRA.
False
Preexisting conditions may prevent a person from obtaining health insurance.
False
Risk evisceration, risk reduction, risk speculation and risk avoidance are the four primary risk management techniques.
False
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, Gold, Bronze, or Palladium.
False
Under a cross-purchase buy-sell agreement for a company with 12 partners, they would need to purchase 12 life insurance policies.
False
Which of the following best describes the advantages of a split-dollar life insurance plan?
It is useful for employers who wish to provide an executive with life insurance at low cost and low cash outlay for the executive.
Allen, Kermit, Ernie and Irma all live at the New Orleans Home for Jazz and the Elderly. Which of these meets the criteria for being chronically ill under qualified long-term care provisions? 1. Allen who cannot drive, hear, or dress himself. 2. Kermit who cannot speak, feed himself, or dress himself. 3. Ernie who cannot hear, walk, or feed himself. 4. Irma who cannot drive, walk, or dress herself.
Kermit only
Consuelo has purchased a life insurance policy with a $1 million death benefit and named her spouse as the beneficiary. She is concerned about her spouse's spendthrift tendencies and would like to ensure that the death benefit proceeds will last throughout her spouse's lifetime. Which of the following settlement options should she select?
Life annuity
Marge participates in an employer sponsored high deductible health insurance plan. When the employer switched to a high deductible plan, a health savings account (HSA) was established for each employee, and the company contributed the policy deductible to the HSA. Which of the following statements concerning this situation is correct?
Marge will receive an above-the-line income tax deduction for additional contributions she makes to the HSA (up to a specified maximum).
Which of the following is true of group health insurance?
NONE OF THE ABOVE Employer group insurance plans that require all employees be eligible for the plan pose the greatest adverse selection risk. Group policies are underwritten by accessing specific health risks of the individuals in the group. One of the downfalls of group health insurance is the high administrative costs for each of the participants.
Benson, a financial planner, is working with his clients to determine their life insurance needs. Benson is determining the life insurance need by estimating the cash needs of the family during and after theinsured's death. Some of the financial needs that Benson is considering are the payment of final expenses, medical care, and eliminating debts. Which of the following models is Benson using todetermine the life insurance needs?
Needs Approach
Reuben is comparing two health insurance policies that have similar benefit provisions, but one is guaranteed renewable while the other is non-cancellable. Reuben is not sure of the difference between these provisions and has come to you for help. Which of the following statements is correct?
Non-cancellable policies guarantee policy renewal until age 65 with no premium increases.
Which of the following is best defined as a provision that provides payments that are less than those paid for a total disability?
Partial Disability
Which of the following statements regarding risk is incorrect?
Particular risk is a risk that will impact a large group of individuals simultaneously.
Peggy is the proud owner of a new sports-car. Her automobile insurance policy includes collision and uninsured motorists coverage so that if the car is damaged in an accident, she will be able to have it restored like new. The policy states that Peggy is required to notify the insurer or the insurance agent immediately when a covered loss occurs. Four weeks ago, Peggy got into an accident while showing off for her friends at a local beach resort. Since the accident was her fault, she decided to get estimates of the damage, and possibly pay for the repairs herself so that her insurance premiums would not increase. After receiving the estimates, she determined it would be better to let the insurance company pay for the damage. Which of the following statements concerning Peggy's auto insurance policy is correct?rect because Peggy did not meet all of the conditions set forth in the policy.
Peggy may not be able to collect under the insurance policy because she did not satisfy all the conditions for coverage.
The immediate cause and reason for a loss occurring, such as a hurricane, is referred to as a:
Peril
A rain slick street, which increases the chance of an automobile accident, is an example of a
Physical Hazard
Which type of hazard results from a physical condition that increases the likelihood of a loss occurring?
Physical Hazard
Ed is considering the health insurance options offered by his employer. He travels frequently and would like to be able to go to any physician of his choice, including those outside of his home area. He does not want a policy that mandates care be provided by employees of the insurer, since he believes that could result in a potential conflict of interest. He does not want large out-of-pocket or coinsurance payments and does not mind patronizing physicians who have agreed to provide discounted services to members of the plan provided that they are not employed by the plan. Out of the following health plans offered by his employer, which should Ed choose?
Preferred Provider Organization (PPO)
Danica, age 59½, was employed full time at JMG Corporation but was recently laid off. The company has 25 full time and 10 part time employees but does not offer group health insurance. What should Danica do for health insurance while unemployed?
Purchase an individual major medical policy during the open enrollment period until she can obtain group coverage with a new employer.
Forrest, age 17, just bought a car for $1,000 to drive to his part-time job. His parents have consulted you on the best risk management techniques for property and liability loss exposure in connection with the car. Which of the following recommendations is most appropriate?
Retention for the property loss exposure, transfer for the liability loss exposure.
All of the following statements concerning whole life insurance are correct EXCEPT:
The premium on a limited-pay policy will be less than the premium on an ordinary (straight) life policy.
When is disability coverage generally no longer needed?
When the individual reaches normal retirement age
Most individuals will have sufficient LTC coverage under Medicare, assuming they are age 65 or older.
false
Long-term care can be extremely expensive. Which of the following statements is/are correct regarding planning for the cost of long-term care? 1. Medicare is a practical way to pay for long-term care. 2. Medicaid planning (transferring assets in order to qualify for Medicaid) should always be used by advisors to assist clients in meeting their long-term care goals.
neither
Jack (age 80) and Jill (age 75) file their 2020 federal income taxes jointly, what is the maximum amount they can claim as a medical expense for itemized deductions for their two long-term care policies?
$10,860
Fred and Daphne have one child, Velma. Fred and Daphne are self-employed, and decided to purchase a Gold plan, and do so outside the Marketplace Exchange. Fred, Daphne, and Velma have incurred the following medical expenses this year: Daphne: Has started experiencing a general sense of being unwell in January that continued throughout the year, including fatigue, getting sick regularly, weight gain and as a result, clinical depression. Total expenses so far for medication, doctor visits, testing, and the like have added up to $3,000. Velma: Had an accident playing lawn darts in their back yard in May. Velma had to be treated at the emergency room. Expenses for the ER and follow-up treatment totaled $5,000. Fred: Could no longer delay back surgery, so he scheduled it for July. The surgery worked as anticipated, but the total bill for care was $70,000. Their health care coverage is as follows: Non-Embedded Gold plan Deductible/MOOP Individual: $6,850 Deductible/MOOP family: $13,700 What is the total amount of out-of-pocket expense Fred and Daphne will have to pay for all family members?
$13,700
Ozzy has a group medical policy with a $500 annual deductible and an 80/20 coinsurance provision, with a $2,000 out-of-pocket limit on covered losses. Ozzy breaks his arm and has surgery that costs $12,000. How much will he have to pay for the surgery?
$2,000
Malinda 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 has 80% coinsurance. If Malinda is injured in an accident, resulting in $2,000 in medical costs, how much will Malinda need to pay for the medical bills?
$800.
In which of the following scenarios would the disability insurance benefits not be taxable if the individual were to be disabled?
An employee purchased disability insurance as a part of a group plan using after tax dollars
All of the following statements regarding insurance policies are correct EXCEPT:
An endorsement is a modification or change to a life or health insurance policy.
William is 40 years old, is married to Kate (age 38), and they have two children, Andrew (age 9) and Edward (age 6). All family members are healthy, and William and Kate anticipate living until about age 85. William is a trial attorney and earns $150,000 per year. This year, they made the final payment on their mortgage, and have retirement plans that are on track to provide them with their desired retirement income at age 65. Since the children arrived, Kate, who is also an attorney, decided to stay at home. William and Kate have asked for your help in determining the appropriate amount of life insurance to purchase for Kate and would like to use the needs approach to life insurance funding. They estimate that funeral expenses will be $15,000; that medical expenses would be no more than $5,000 (since they have very good health insurance coverage); that probate fees would be about $10,000; and that due to his demanding schedule, William would have to hire full-time household staff to take care of the children and the home until Edward is in college at a cost of approximately $60,000 per year, after which he could hire part time household staff for the remainder of his life at a cost of about $20,000. They estimate that inflation will average 3% over their lifetime and anticipate that expenses they incur will increase at the rate of inflation. William believes that he can earn 8% per year on invested funds. How much life insurance should be purchased by the family to cover their needs if Kate were to die today?
$750,651 The life insurance death benefit needed if Kate dies today is $15,000 (Funeral Expenses) + $5,000 (Medical Expenses) + $10,000 (Probate Expenses) + $536,190 (The present value of cost of household staff until Edward reaches age 18) + $184,461 (The present value of the cost of household staff from the time Edward enters college until William's death). The present value calculations use an inflation adjusted rate of return, equal to (1.08/1.03) -1 = 4.8544%.
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 policy owner, 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.
Both
Which of the following statements concerning universal life insurance is (are) correct? 1. The policyowner has no ability to direct the investment of the policy's cash values. 2. Universal life policyowners can choose the amount of premium they pay into their policies, subject to insurer minimums and maximums.
Both
Which of the following statements is/are correct regarding insurance contracts? 1. The principle of insurable interest is closely aligned with the principle of indemnity, which both limit the insured from experiencing a gain using insurance. 2. 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.
Both
Which of the following statements regarding COBRA benefits is incorrect?
Employers must offer coverage for 36 months if the employee is terminated and for 18 months if the employee dies.
All else equal, an any-occupation policy should have a larger premium than an own-occupation disability policy.
False
An earthquake is an example of a particular risk.
False
An insured must always have an insurable interest at the time of the loss to receive payments under an insurance policy.
False
For a risk to be insurable, the losses must be indeterminable.
False
Generally, only $10,000 worth of heath care insurance coverage can be provided by an employer and be excluded by the employee from federal income tax.
False
Going to Las Vegas to place a bet on the roulette wheel is an example of pure risk.
False
Marilu is 83 years old and has been blind for four years. She is no longer able to drive or cook for herself. Assuming she has a qualified long-term care plan, is she considered chronically ill?
No, neither sight, cooking or driving is considered an ADL
Which of the following policies provides the greatest degree of protection to the insured?
Noncancelable
Which of the following is a risk reduction technique?
Parking your car at the end of the parking lot, away from other cars
Redball Inc. would like to use key employee life insurance to provide protection in the event of the death of the owner and key employee, Red Baldwin. Which of the following is correct regarding the key employee insurance?
Redball, Inc. will be the policy owner, premium payer, and beneficiary of a policy on Red's life.
The use of increased deductibles by the insured in insurance contracts is an example of:
Risk Retention
Which of the following statements is false?
Social Security disability benefits will most likely provide adequate income replacement for any disability
Premium rates set by insurance companies are regulated at which level of government?
State
A cross-purchase buy-sell agreement provides more favorable tax treatment for the surviving owners versus an entity purchase agreement.
True
Which of the following is a criteria required for an insured to qualify for long-term care benefits? 1. The insured is unable to perform two of the six ADLs for at least 90 days. 2. The insured has substantial cognitive impairment requiring substantial supervision for his or her protection.
both
Which of the following are not considered one of the activities of daily living (ADLs)?
cognitive ability
Minerva's employer has offered to provide her with life insurance under a Sec. 162 double bonus plan. If the premium for the policy is $15,000 per year, and Minerva is in the 32% tax bracket, what will be the amount of her salary bonus this year?
$22,059.
Padma's employer has decided to implement a Sec. 162 double bonus plan as a fringe benefit for key executives. Under the plan, Padma can purchase a life insurance policy of the type that she believes is most beneficial to her and her family and the employer will pay the premiums. Padma has selected a whole life policy with long-term care rider and the premium is $15,000 per year. If Padma is in the 35% tax bracket, what will be amount of the salary bonus included in her income based on the double bonus plan?
$23,076.
Bentley has paid $40,000 in premiums on a whole life policy with a $250,000 death benefit. The policy has paid a dividend of $1,000 per year for the past 10 years. If Bentley surrenders the policy today for it's cash value of $55,000, what will be the amount of gain subject to taxation?
$25,000 The cost basis is equal to the total premiums paid, less the dividends received. $40,000 - $10,000 =$30,000. The gain upon surrender is $55,000 - $30,000 = $25,000.
Elroy is a fly-fishing guide who earns $6,000 per month. He is self-employed and wants to purchase an individual disability policy. What policy benefit amount is he likely to be able to obtain?
$3,600 per month
As a result of a recent hospitalization, Ruby's hospital bill was $9,000, including $250 for flowers ordered from the hospital florist shop. How much will Ruby's major medical insurer pay if the policy has a $500 deductible and an 80 percent coinsurance provision?
$6,600. The flowers are not a covered medical expense. The coinsurance clause means the insurer pays 80% of the amount by which the covered medical expenses, $8,750, exceed the $500 deductible. ($8,750 - $500) x 0.80 = $6,600.
Maren owns a home with a $400,000 replacement value. This January, a snowstorm causes $75,000 in damages to the home. Maren has an insurance policy with 80% coinsurance and a $1,000 deductible. How much will the insurer pay if Maren carries $300,000 of coverage?
$69,312.50 ($300,000 / (0.80 x $400,000)) x $75,000 = $70,312.50 - $1,000 (deductible) = $69,312.50
Peg, an employee at Initech Software Solutions, recently divorced her husband, Al. Initech has provided group health insurance coverage to Peg and her family since she began working for the company. Al is unemployed, but is entitled to COBRA continuation coverage for:
36 months.
The Social Security disability minimum waiting period is how long?
5 months
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 who, at any point during the year, employs at least:
50 people.
Which of the following assets belonging to a Medicaid recipient is generally a countable asset under Medicaid rules?
IRA
The section of a insurance contract that describes exactly which property or person is being covered is the:
Declarations Section
ll of the following are true regarding Health Savings Accounts (HSAs) EXCEPT:
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.
Which of the following statements regarding entity purchase buy-sell agreements is correct?
If the business has five owners, 20 life insurance policies must be purchased
Indemnity health insurance plans are one of the ________ flexible types of insurance policies, in terms of having the freedom to pick your own providers, but participants pay some of the ________ premiums.
Most; highest.
Which of the following is not a requirement of a "qualified" long-term care insurance policy?
The contract must offer to cover pre-existing conditions
Ebenezer is the richest man in the world. His net worth is estimated to be $100 billion. As a resident of the United States, Ebenezer is subject to estate tax, which will result in a tax liability of approximately $50 billion upon his death. Ebenezer is not happy with this prospect, and requests that your insurance company, Safe & Sure, issue a $50 billion life insurance policy on his life to cover the payment of estate taxes. Ebenezer does not trust other insurance companies and insists that your company underwrite the entire risk. Which of the following statements concerning this situation is correct?
The insurance company should decline to underwrite this coverage because it could result in a catastrophic loss to the insurer.
For the past 10 years, Stewart was an agent for It's a Wonderful Life Insurance Company. While his career started out strong, Stewart got involved in some transactions involving cash that violated his company's ethical policies, and they terminated him as an agent last month, but did not notify Stewart's clients of his termination, and have not yet collected company forms and logos from Stewart. Last week, Christopher, a long-time client of Stewart's, purchased a new It's a Wonderful Life life insurance policy from Stewart to cover the costs of his newborn child's college education. The policy indicated that the insurance was in force as soon as Christopher signed the application and paid the premium (based on simplified underwriting for a newborn). Which of the following statements is correct?
The policy is in effect because Stewart had the apparent authority to issue the policy.
Which of the following is true of basic medical expense insurance?
The policy limits are likely to be very low compared with major medical policies.
A rider is a modification or change to a life or health insurance policy. Riders and endorsements are a way for an insured to effectively customize a policy.
True
A subrogation clause entitles the insurer to seek a claim against a negligent third party for any claims paid to the insured.
True
A viatical settlement may be attractive to a terminally ill policy owner/insured who does not qualify for accelerated death benefits under the policy provision or rider.
True
Alex, a famous college baseball player for State University, filed a false police report stating that he had $10,000 worth of clothing, cash, and jewelry stolen from a borrowed car. There was actually no theft. The baseball player was hoping to collect a $10,000 check from the insurance company for the alleged stolen items. However, he found himself in jail charged with filing a false police report. This is an example of moral hazard.
True
Any-occupation policies state that if the insured is unable to perform each and every duty associated with his or her own occupation, the insured is deemed disabled and will qualify for benefits.
True
In the early years of a whole life policy, the premiums are significantly greater than the mortality cost.
True
Nonqualified deferred compensation is popular with employers due to the flexibility of design and ability to discriminate in favor of key executives.
True
Objective risk is the difference between the expected and actual loss and varies indirectly with the number of loss exposures in an insured pool.
True
Rosie, age 30, would like to purchase a life insurance policy that will accumulate a cash value which will be paid to her beneficiaries in addition to the death benefit, and that will allow her to access the cash value during her lifetime via withdrawals. Which of the following policies is most likely to meet her needs?
Universal life option B
