Final: 1-34 - L+H

In a noncontributory plan, what percentage of eligible employees will be covered under a Group Health plan?

100%

The maximum Social Security payment for disability income is:

100% of the PIA (Primary Insurance Amount)

To be fully insured under OASDI (Old-Age, Survivors, and Disability Insurance) rules, one must have been employed for at least:

40 quarters

In a contributory plan, at least what percentage of eligible employees must participate in the group plan?

75%;- The laws of most states require 75% of the employees to participate in a contributory plan. We don't want all of the younger/healthier workers to "opt out" sticking the older/less healthy workers with high premiums. We need those healthy workers paying premiums but not filing claims so that reasonable premium rates will be there for the older/less healthy workers. If you think this is discrimination against the young, you are exactly right. And insurance laws are very clear that age discrimination is legal in the world of insurance.

With group insurance, the Insured receives:

A certificate of insurance;- Insureds under a group policy don't own and don't receive the policy. The employer owns and receives the policy. The workers simply get a certificate of insurance indicating that they are covered. The laws refer to this as a "certificate of insurance" but in reality it is simply a membership card along with a booklet explaining the key coverages.

An employee covered under an employer group policy will receive which written document that outlines coverage and provides evidence that group coverage is in effect?

A certificate of insurance;- The employer receives the group policy. The Certificate of Insurance is given to the employees in the group to provide a summary of the policy's coverage. Most employees don't want to read the entire policy - all they want is the summary of coverage provided by the Certificate.

Each of the following may have an insurable interest (Insured's parent, spouse or employer) EXCEPT?

A charity to which the Insured consistently donates money.

Which of these provides coverage only if an employee chooses to join the group?

A contributory group policy;- With a contributory group, the employee isn't covered until the employee agrees to join the group and contribute at least a share of the premium.

Jeanine has a Group Health plan at work. Her employer pays half of the premium each month and deducts the other half from Jeanine's paycheck. What is this type of plan called?

A contributory plan;- Remember, if an employee insured under a group policy has to "contribute" part of the premium, we have a "contributory" policy. As we will see, that means that the employee may choose to "opt out" and not pay for the coverage

Which of the following helps underwriters predict the likelihood of death?

A mortality table

Paul has a Group Health plan at work. His employer pays the whole premium and Paul does not have to pay anything for the coverage. What is this type of plan called?

A noncontributory plan;- If there is "no contribution" by Paul, this is a "noncontributory" plan. I know this is a bit confusing, but after you use these terms a bit, you will get more comfortable with them.

John and Carol are a married couple in their early twenties. John has worked full time at the local factory for 3 years. It is his first job. John is killed in a tragic golfing accident. Carol is eligible for which of the following:

A single lump sum survivor benefit of $255

An applicant submits an application with the first premium payment. The company delivers the policy. This constitutes a/an?

Acceptance

The Law of Large Numbers allows Insurers to:

Accurately predict future losses;- The Law of Large Numbers is a mathematical concept that says it is tough to predict the outcome if we only toss the dice a few times. The more times we toss the dice, the greater the likelihood that we can accurately predict how many times a particular number will come up. This concept is used by insurance companies to predict losses. The more policyholders, the more likely their actuaries can accurately predict the number of losses that will occur in any given time.

The inability of an Insured to negotiate any changes in the policy language relates to the concept of?

Adhesion

If the policy owner misstates her age on the application, the company will:

Adjust the benefits paid.

Who sells insurance to a client and owes a fiduciary duty to an insurance company?

Agent

The section of the application providing the Producer's evaluation of the applicant is known as the:

Agent's report;- This is the agent's section of the application that is used to provide the underwriter with the agent's evaluation of the applicant. If the policy is issued, the application is attached to the policy but this part of the application will usually be removed and kept by the Insurer rather than being attached to the issued policy.

Under an insurance policy, either the Insurer or the Insured may receive disproportionate payment under the concept of:

Aleatory;- The insurance exam is overflowing with trivia like this. Insurance policies are an example of a situation where unequal payment may occur - either party may pay far more than it receives. This type of contract is referred to as aleatory. The video covers these terms so that you don't need to memorize them - you will "recall them when you see them" on the exam.

An applicant has an insurable interest in each of the following situations (Parents ask to insure their child.,A business wants to purchase life insurance covering a key employee., Business partners ask to purchase life insurance on each other.) EXCEPT?

Alec wants to purchase life insurance covering his ex-spouse

If only 5% of a company's employees choose insurance coverage, this presents what type of issue?

An adverse selection issue;- This appears to be an adverse selection issue. Likely, only the sick employees are buying insurance. This will dramatically increase the expenses for the Insurer and the cost for the Insured

Which of the following statements is true concerning the agency relationship?

An insurance broker owes a fiduciary duty to the client

Which of the following statements is true concerning the producer's agency relationship?

An insurance producer owes a fiduciary duty to an insurance company

Ms. L applies for life insurance but does not make an initial premium payment. Her actions constitute?

An invitation to negotiate for the purchase of life insurance.

The premium mode which results in the greatest cost savings over the life of the policy is:

Annual Premium;- Of the answers available in this question, the greatest cost savings come with the Annual Premium. The fewer payments, the less expensive the insurance company's collection costs - and the company can invest that premium for a longer time. Even better would be a one-time, up-front payment - that would be the best in terms of cost savings for the policy owners.

Which of the following premium modes will result in the least total dollar outlay over the life of the policy?

Annual;- Although the Weekly premium mode would have the lowest individual premium payments, it would have the highest total dollar outlay over the policy's life. So, to save money in the long-run, "buy in bulk." The Annual Premium Mode will save you the most dollars over the life of the policy. It is less expensive for the insurance company to collect the policy once a year rather than on a more frequent basis.

When must an insurable interest exist for Life and Health Insurance?

At the inception of the policy.

When must a life or health insurance applicant have an insurable interest?

At the inception of the policy.;- For Life or Health, I only need an insurable interest at the time the policy is purchased. So, if I buy a policy covering my wife Nancy but I get divorced tomorrow, the policy is valid because I had an insurable interest at the time the policy was delivered.

Indemnity means:

Being made whole.;- The whole idea of indemnification is that the Insured will be made whole but not come out ahead. This is a very, very general goal. In real life, the Insured rarely hits "indemnification" exactly. The Insured is usually a bit behind or a bit ahead after filing a claim, but we are all striving for indemnification - that perfect spot where the insured is made whole after suffering a loss without coming out ahead.

Who helps place a client with an insurance company and owes a fiduciary duty to the client?

Broker

Underwriting involves each of the following activities (Reviewing applicant information., Predicting future losses., Placing an applicant in the appropriate rate group) EXCEPT:

Carefully investing premium dollars to achieve returns;- The insurance company's financial wizards invest the premium money. That isn't a task for which the underwriter has any training. Again, this is an "EXCEPT" question where we are searching for the false answer - something our brain doesn't want to do.

Which of the following losses is least likely to be insurable?

Catastrophic loss;- Generally speaking, insurance companies try to avoid insuring catastrophic losses. Although one can buy some catastrophic insurance (flood and earthquake quickly come to mind), most catastrophes are found in the exclusions section of the policy.

If a ______________ is used, the policy may become effective prior to delivery.

Conditional receipt

Exchanging something of value is known as?

Consideration

Which policy section specifies the amount of the premium?

Consideration clause

The producer tells the Insured that the premium is due each year on June 1st. The Insured may confirm this by reading which section of the policy?

Consideration clause;- The Consideration Clause specifies that the consideration given by the applicant includes not only the premium but also the statements made in the application. In addition, the Consideration Clause specifies the amount of the premium, the premium mode (how often premiums must be paid), and the date the premium is due. It will also specify the location where the premium is to be paid.

Assume that an application doesn't include a premium payment. Which contract element is missing?

Consideration;- Every contract requires consideration. A mere application without a premium lacks consideration. It also lacks the required element of an offer because an application without a premium is merely an invitation to negotiate (but that wasn't a choice among the answers). (c) is false because negotiation isn't a contract requirement.

An applicant submits an application with the first premium payment. The company issues a rated policy along with a bill for the difference in premium. The company's response is an example of a/an?

Counteroffer;- The application with the premium is an offer. The company chose not to accept the offer but rather made a counteroffer of a different policy (the rated policy). The company's action is an example of a counteroffer.

If an applicant is not offered a policy after the underwriting process, he or she is referred to as a/an:

Declined Risk;- The applicants who are not offered policies are referred to as rejected risks. They may be insurable by other companies with different underwriting standards, so we won't refer to them as "uninsurable."

Insurance _________ risk

Decreases

What document triggers the 10-day Free Look period?

Delivery receipt

The 10-Day Free Look provision is initiated by the:

Delivery receipt;- EXPLANATION: The 10-Day Free Look provision is initiated when the policy becomes effective. In the list of answers, the only one that could indicate that the policy has become effective is the agent giving the applicant a delivery receipt when delivering the policy. Not a nice question. A key point that we will see later is that there is a Free Look provision with individual policies but not with group policies.

Each of the following is a factor in calculating gross premium (Risk, expenses, interest) EXCEPT:

Dividends

Each of the following statements regarding noncontributory plans is correct (The employer pays for the coverage., All eligible employees are automatically covered., The plan may use a probationary period to determine when the employee is eligible to participate in the group insurance.) EXCEPT?

Each employee must be given the right to select individual benefit levels

Each of the following groups is eligible for group life or health insurance EXCEPT:

Family groups

Premium mode refers to the:

Frequency of premium payment;- Premium mode is the frequency of premium payment. The more often premiums are paid (such as daily), the more expensive the insurance will be.

Each of the following involves pure risk (Dying, getting sick, becoming disabled) EXCEPT:

Gambling in Vegas;- Pure risk involves a chance of loss with no chance of gain - such as sickness, dying, or becoming disabled. Gambling and starting a business are examples of speculative risk - there is the possibility of a gain. Speculative risk isn't covered by insurance.

What policies do NOT contain a Free Look Clause:

Group;- There is no Free Look Clause in Group Life or Group Health policies.

To qualify for Old Age and Survivors Disability Insurance, one must:

Have been employed for at least 40 quarters

An agent is asked to sell a Life Insurance policy with a minor as the insured. The agent should:

Have the minor Insured's parent or guardian sign the application.

Under Social Security, a worker that is fully insured would be eligible for each of the following benefits (Survivor, retirement, disability benefits) EXCEPT:

Hospital benefits

Which statement is correct?

If a Conditional Receipt is used, the policy may become effective prior to delivery.;- The Conditional Receipt allows coverage to be effective retroactive to the date of application or the date of the medical exam, whichever occurred last.

The transfer of risk is:

Insurance

A risk management technique that transfers risk is:

Insurance;- The only risk management technique in the list that actually transfers the risk to another is insurance. Although insurance will transfer some of the risk, it won't transfer all risk. An example of this is that the Insured under a property policy has to pay the deductible. But, as a very general rule, we can say that insurance involves the transfer of risk.

The Law of Large Numbers:

Is used to determine premiums based on historical loss figures;- This is an example of how you are going to have to "process" the information you have learned by applying that information to a particular question. The test writers are constantly changing questions but rarely test on a new topic. So, we have to be flexible and quick on our feet so that we can recognize something that is stated in a new manner. By predicting losses based on historical figures, the Law of Large Numbers assists the Insurer in setting premium rates

Each of the following statements regarding insurance is true EXCEPT:

It involves the Insured paying a premium to transfer all risk to the insurance company TRUE: It involves the transfer of risk.

Which element of contract law requires that all parties be of sound mind, sober, and the age of majority to form a contract?

Legally competent parties

The formula used to determine a premium includes each of the following elements (Risk, interest, expense) EXCEPT:

Liquidity;- The premium formula is "Premium = Risk + Expenses - Interest."

Molly changes her premium mode so that she makes her premium payments more frequently. Will this make her insurance more or less expensive each year?

More expensive

Consenting to be insured by a third party owner:

Must be given in writing and normally consists of the Insured signing the application.

Which type of insurance company is owned by its policyholders?

Mutual Company

The creation of a contract requires each of the following elements EXCEPT?

Negotiation and notarization.;- At least from the Insured's side, there is no negotiation in an insurance transaction - which is why insurance policies are referred to as contracts of adhesion. The Insured is stuck with the the Insurer's terms in the contract. Also, there is no requirement that insurance policies be notarized by a notary public.

A policy that covers losses due to employment is known as "occupational coverage." A policy that does NOT cover losses due to employment is known as:

Nonoccupational

In a noncontributory plan, what will eligible group members need to do to enroll other than complete an application?

Nothing. Enrollment is automatic.;- With a "noncontributory" plan, everyone is automatically covered. No need to "opt in" or "opt out" because the boss pays for everything - no money comes out of the employees' pockets.

An applicant submits an application with the first premium payment. This constitutes a/an?

Offer

A Hospital Indemnity Policy's Elimination Period is applied:

Once per each hospital stay;- To prevent Insureds from buying a Hospital Indemnity Plan for a planned hospital stay, such as for child birth, the policies usually have a 2 or 3 day Elimination Period that is applied to each hospital stay. That means that the Policy will only pay for an extended hospital stay and will only begin to pay after the 2 or 3 day Elimination Period has expired. This is a new point that is not covered in the text.

Unilateral means:

Only one party to the contract makes a legally enforceable promise.

Ms. Y lied about material facts on her life insurance application but the insurance company did not discover the lie until Y died 3 years later. What will the company do?

Pay the claim

The Insured died six months after a life policy was delivered. The Insurer discovered that the application was incomplete and not signed by the applicant. The Insurer will do which of the following?

Pay the claim

A Hospital Indemnity Policy:

Pays even if other insurance has already paid for the hospital stay;- Because it is a valued policy, A Hospital Indemnity policy will pay even if another policy has already paid the claim. And, because it is a "valued" policy, it not really an indemnity policy. The Insured may "come out ahead" with a Hospital Indemnity Policy. The trick here is that this shouldn't be called an indemnity policy - but it is.

The cause of the loss is called:

Peril

The time period one must be employed before becoming eligible for group Disability Income or Health Insurance is known as the:

Probationary period;- UPDATE: New point! Unfortunately, "Probationary Period" and "Waiting Period" are used rather interchangeably in the insurance industry. Technically, a Probationary Period is the time period before an employee becomes eligible to purchase group insurance. After the policy becomes effective, there may be a further "Waiting Period" before coverage becomes effective or claims will be paid. This is very confusing because the terms don't have precise meaning in the industry and are often used differently from company to company. Think of new employees who are "on probation." They won't be eligible to purchase coverage until the end of the "Probationary Period."

Which of the following statements regarding a single employer group plan for a new business is CORRECT?

Proof of insurability will not be required and the Insurer will use "community" rating;- Group plans (large groups or single-employer groups) don't require proof of insurability. The Insurer assumes that workers are in reasonably good medical condition because they are employed. With a new business group, the Insurer uses will use "community" rating because the Insurer lacks the historical information needed to use "experience" rating.

Each of the following statements regarding Social Security Retirement benefits is correct. (benefit amount will vary if the worker retires early or late., Worker must have fully insured status to be eligible for retirement benefits., Congress can change benefit levels) EXCEPT:

Retirement benefits will be reduced if the worker has retirement income from a company-sponsored retirement plan

Uncertainty of loss is:

Risk

Sally wants to buy Life Insurance covering Mike. Which of the following statements is true?

Sally needs to have an insurable interest in Mike and obtain Mike's consent on the policy application.

Each of the following may be a reason for denying a policy (Occupation, health, age). EXCEPT:

Sex (gender);- Sex (gender) may be a reason for charging a higher premium but cannot be a reason to deny a policy

A company may provide group insurance for each of the following (Officers, Employees who are members of labor union, Directors) EXCEPT:

Shareholders;- An employer may provide group insurance for all of its present or past employees. All of these people listed are working for the company EXCEPT for the shareholders. Thus, shareholders can't be covered under an employee group policy.

A life insurance applicant gives consideration to the Insurer in return for?

The Insurer's promise to pay a claim.

Each of the following statements is true regarding the agency relationship (Broker represents the insured, Producer represents the insurer, agent represents the insurer). EXCEPT:

The agent represents the client;- Many states no longer license brokers, but a broker represents the Insured (client). On the other hand, a producer (also known as an agent) always is considered to be a representative of the Insurer, not a representative of the client. The result is that in most transactions, nobody actually represents the "client"!

The primary source of insurability information is:

The application;- Although an underwriter might get some information from all of these sources, the typical underwriter relies primarily on the information in the application. Thus, we have a bit of generalization when we say that the application is the "primary" source of insurability information. Other sources may provide information, but the "primary" source is usually the application.

In a group policy situation, who receives the policy certificate?

The employee;- The Insured doesn't receive the master policy but the Insured does receive a certificate of coverage.

Which of the following is correct regarding an association buying group insurance?

The group cannot be formed for the purpose of buying insurance;- As a general rule, a group cannot be formed for the purpose of buying insurance. The group must be formed for any other purpose. The members receive a certificate, not a copy of the policy.

A policy's coverage becomes effective when?

The policy is physically delivered to the applicant, assuming the premium has been paid.

Assume that no conditional receipt is used. If the premium has been paid and the medical exam taken, a policy's coverage becomes effective when?

The policy is physically delivered to the applicant.

If a conditional receipt is used:

The policy may become effective prior to delivery.

The Uniform Policy Provision Law provides:

The right to sue within a stated time after filing a Proof of Loss claim

Which document is signed to initiate coverage if no conditional receipt is used?

The statement of continued good health.;- Another possible answer could have been the Delivery Receipt. You won't see both answers in the same question.

Which of the following is required for a worker to be eligible for disability benefits under Social Security?

The worker must have fully insured status

A business insures its key executive. This is an example of?

Third party ownership

The main principle of insurance is:

Transfer of risk

Risk is defined as:

Uncertainty of financial loss

The process of selecting and classifying risks is called:

Underwriting

Social Security provides each of the following benefits EXCEPT:

Unemployment benefits.;- There are no unemployment benefits under Social Security. Social Security covers the other items listed, however. This is a typical exam trick - the test writers know that everyone understands that unemployment benefits are provided - they just aren't provided by Social Security.

The fact that only one party in an insurance policy makes a promise is related to which contract law concept?

Unilateral

The fact that the Insurer makes a promise but the Insured does not make a promise relates to the concept of?

Unilateral;- We have only one promise in an insurance policy - the Insurer promises to pay claims. The Insured does not promise to pay any more premiums. Thus, insurance policies are unilateral because they involve a promise made by only one person.

Abe's Insurer issued his policy even though his application was incomplete and unsigned. The Insurer cannot cancel the policy because of which legal concept?

Waiver or Estoppel;- When the Insurer issued the policy, it became bound by the contract. The Insurer had every opportunity to demand that the application be completed and signed. By failing to make that request, it waived its right to contest the policy. For our purposes, waiver and estoppel are interchangeable terms.

If an Insurer issues a rated policy, when will coverage become effective?

When delivered to the applicant and the applicant pays the additional premium;- Rated policies are sold at a higher premium so the policy won't be effective until delivered and the applicant has paid the extra premium.

A statement of continued good health is used in which of the following situations?

When the policy is delivered and no conditional receipt was issued.

Molly is injured in a work-related accident. Molly is considering filing a negligence lawsuit against her employer.

Work Comp is Molly's sole remedy - she cannot win a lawsuit against the employer