Risk management/insurance final

Brad has purchased an umbrella liability policy requiring that he carry $300,000 per person as the liability limit in his personal auto policy. Brad's auto policy has split-limits of $100,000/$300,000/$50,000. In an auto accident caused by Brad, a pedestrian is injured and is awarded $250,000 by the court. How much will Brad's umbrella liability insurer pay in this situation?

$0

Mike has the following split limits of coverage on his Personal Auto Policy of 100/300/50. Which of the following best describes Mike's coverage?

$100,000 per person for bodily injury, $300,000 per occurrence for bodily injury and $50,000 for property damage.

Sonny and Cher have their home insured under a HO-3 policy. The amount of the coverage on the dwelling, $100,000, has been left unchanged for several years. Yesterday, the home was struck by lightning, causing $10,000 of damage, as measured by actual cash value, and $18,000 of damage, as measured by replacement cost. The replacement cost of the home at the time of the lightning damage is estimated at $150,000. In this situation, which of the following amounts will Sonny and Cher recover from the insurer for this loss (ignoring any deductible)?

$15000

A client contracted for a house to be built on a plot of land that cost him $100,000. The builder completed the house for $250,000. The client has contacted an insurance agent about obtaining an HO-03 homeowners insurance policy that will insure the house for its replacement cost. The policy will have an 80% coinsurance provision and a $2,000 deductible. How much insurance does the client need to buy to cover the full replacement cost of the house in the event of a total loss by fire?

$250000

Saul purchased a life insurance policy with a face value of $100,000. Unfortunately for Saul, and his wife, Rhea, he died racing "import cars." At the time of death, the life insurance policy had a cash value of $40,000. The beneficiary was his wife. Rhea, who has a life expectancy of 40 years, decided to take the single life annuity option with the life insurance proceeds. This option will pay her $500 per month for the rest of her life. How much of the monthly payment is taxable?

$292

Mary lives in Idaho where she carries the state-mandated minimum liability insurance on her car (15/30/10) through her personal automobile policy (PAP). She is driving through Oklahoma and has a wreck with Gerri. Oklahoma requires minimum liability insurance of 30/50/20. Gerri suffers bodily injury in an amount of $40,000 and Gerri's vehicle is damaged in an amount of $22,000. How much will Gerri collect from Mary's PAP policy?

$30000, $20000

Dermott's personal auto policy has split liability limits of 100/300/25. In an auto accident where Dermott was at fault, four people in the other car were injured. The court awarded $125,000 to each of them for bodily injury, plus $30,000 for property damage to the other car. Also, the cost of Dermott's legal defense totaled $18,000 in lawyers' fees. In this case, how much of the $548,000 will be borne by Dermott's insurance company?

$343000

On the day Jenton Kim entered a nursing home, he and his wife Karena had countable assets of $88,000. What amount must the Kims spend down for Jenton to be eligible for Medicaid?

$42000

Perry, who is 50 years old, was building a new home for his family. However, he was running out of money and could not afford the pool they fell in love with. Since his family was upset, he decided to take a withdrawal from his annuity. He had contributed $100,000 to the annuity, and the value of the annuity today is $300,000. He decided to take a withdrawal of $60,000 from the annuity. Which of the following is correct?

$60,000 is taxable as ordinary income and subject to the early withdrawal penalty.

Mason, who is now 70 years old, was a diligent saver during his working years and accumulated $100,000 at age 60. He used his savings to purchase a single premium annuity, which pays him $1,000 per month. If his life expectancy was 25 years when he purchased it, how much of each payment is subject to tax?

$667

Shemar bought a building two years ago for $700,000. The building is insured under a commercial package policy with limits of $700,000 on the building. The policy is written on a replacement cost basis with an 80% coinsurance requirement and a $2,500 deductible. The current replacement cost of the building is $1 million. If a fire in the building causes damage that will cost $80,000 to repair, what amount will the insurance company pay?

$67500

The HO-03 provides medical payments coverage for which of the following persons? 1. The insured and family members residing with him or her. 2. Any person on the insured premises with the permission of any insured. 3. Any person injured away from the insured premises if the injury is caused by the activities of the insured. 4. Any person injured away from the insured premises if the injury is caused by an animal owned by or in the care of any insured.

1. The insured and family members residing with him or her. 2. Any person on the insured premises with the permission of any insured. 3. Any person injured away from the insured premises if the injury is caused by the activities of the insured.

The personal umbrella policy provides excess coverage over which of the following insurance? 1. The personal auto policy liability coverage. 2. The homeowners personal property coverage. 3. The homeowners liability coverage. 4. The uninsured motorists coverage in the PAP.

1. The personal auto policy liability coverage. 3. . The homeowners liability coverage.

Which of the following are among the ways in which a life insurance policy can be used to help finance the cost of the insured's long-term care? 1. add an accelerated death benefits option to the policy 2. enter into a viatical settlement agreement 3. add a double indemnity rider to policy 4. create a policy loan against cash value

1. add an accelerated death benefits option to the policy 2. enter into a viatical settlement agreement 4. . create a policy loan against cash value

Fatima is a widow and 82 years of age. She gave her three children $20,000 each three years ago and has exhausted all of her other assets. Fatima has just entered a nursing home that costs $6,000 per month and applied for Medicaid. The average monthly cost of nursing home care in Fatima's state is $6,000. How long after entering the nursing home will Fatima be eligible for Medicaid payment of her nursing home care?

10 months

Kareem is a drug rep and planning on retiring next month. He is using his accumulated $200,000 to purchase an annuity. Which of the following options will give him the largest monthly annuity payment assuming his life expectancy is 20 years and his wife's life expectancy is 22 years.

10 yr term certain

For Medicare beneficiaries, the maximum stay in a skilled nursing facility during a benefit period cannot exceed how many days?

100 days

Which of the following factors will be likely to require an increase in the premiums that will be paid for a long-term care policy? 1. a benefit trigger specifying a requirement 2. a deceased elimination period 3. inflation protection rider 4. insured who is married

2. a deceased elimination period 3. inflation protection rider

Last year Dwight set up a trust for his daughter and son consisting of all $200,000 of stocks and bonds in his investment portfolio. Dwight has retained his home valued at $300,000. This year, Dwight expects to enter a nursing home in a state where the average cost of nursing home care is $5,000 per month. How long is Dwight's penalty period on asset transfers before Medicaid will begin to pay for his nursing home expenses?

40 months

Approximately, what percent of persons over the age of 65 will require some long-term care services at some point in their lives?

70%

Hugh purchased a single premium annuity for $200,000. The annuity pays him $1,000 per month. If his life expectancy was 20 years when he purchased it, how much of each payment is not subject to tax?

833

Which of the following is true

A fixed annuity mitigates the risk of superannuation.

Selena is retiring in the next month. She was the bread winner in the family while Rafeal was the stay-at-home dad. They have limited assets but will receive Social Security. Which of the following is the best type of annuity for her to select?

A joint life annuity on the lives of selena and rafeal

Under which of the following circumstances would the liability coverage of the car owner's PAP be available to the negligent driver? 1. A neighbor borrows the insured auto for grocery shopping, believing this would be agreeable to the named insured because the neighbor had done the same thing several times previously. 2. An eighteen-year-old college student, while intoxicated, takes a neighbor's car to show his buddies how he can start the car without an ignition key.

A neighbor borrows the insured auto for grocery shopping, believing this would be agreeable to the named insured because the neighbor had done the same thing several times previously.

Bert and Enrie are brothers who frequently drive each other's cars. Their automobiles are insured as follows: Ernie- ABC Co- 40/50/10 Bert- LMV Auto- 100/300/25 Bert is negligently driving Ernie's car and has an accident causing bodily injury to the other party involved in the accident in the amount of $50,000. Which insurer will pay, and how much?

ABC $40000; LMV $10000

Which of the following statements about annuities is not correct?

All annuities are subject to min distribution rule

There are many options regarding the type of annuity one can purchase. Which of the following is correct?

An equity indexed annuity generally has less risk than a variable annuity

Arline is a 70-year-old widow with no dependents. She wants to invest in an annuity that will produce income now. She has $100,000 to invest and wants to receive the most she can in monthly income. Which of the following is the most suitable annuity for Arline based on her objectives?

An immediate, single premium life annuity

Which of the following statements concerning professional liability insurance coverage on an occurrence basis or a claims-made basis is correct?

An insured who changes from a claims made policy to an occurrence basis policy, or who retires, will need to purchase a "tail" (extended reporting period) on the claims made policy to ensure adequate protection.

Tax qualified long-term care insurance policies must offer all of the following features, provisions, or options except:

An option to purchase skilled nursing care coverage only.

For which of the following persons will medical expenses be paid under the Medical Payments Coverage of the personal auto policy?

Any insured or family member injured in an accident while occupying any auto.

Which of the following would not be considered an insured person for the purposes of Part A (Liability Coverage) for a Personal Auto Policy?

Any person using "your covered auto" without permission.

Custodial or personal care is?

Assistance with daily living tasks.

All of the following statements are correct regarding a Personal Auto Policy Part D (Coverage for Damage to Your Auto) coverage except:

Collision with animal or birds

Which of the following statements concerning the federal income tax treatment of monetary settlements is (are) correct? 1. Under a structured settlement related to bodily injury, the portion of each payment received that represents interest is taxed as income, while that represented by principal is tax-free. 2. Damages received because of employment discrimination are taxable as income. 3. Punitive damages are tax-free for the recipient.

Damages received because of employment discrimination are taxable as income.

Annuities provide many benefits and have many advantages over other alternative types of investments. Which of the following is not an advantage of a single life annuity?

Distribution receive favorable capital gain treatment

There are several types of annuities. Which of the following orders the investment options from least risky to most risky?

Fixed, equity indexed, variable

Quincy, age 33, plans to retire at age 67. Quincy is a consultant and his income varies widely on a monthly basis. Quincy wants to invest in an annuity over his work life expectancy. Which of the following annuities is most suitable for Quincy?

Flexible premium, deferred annuity

Which of the following statements concerning specific HO forms is correct?

HO-04 provides no coverage on a dwelling or on toher structures

Jennifer lives by herself and rents a one-bedroom apartment in Manhattan. Which of the following homeowners policies would be most appropriate for Jennifer to purchase?

HO4

Hector, who has retired to Miami, decided to purchase a condominium unit on the beach. Which of the following homeowners policies would be most appropriate for Hector to purchase?

HO6

Luther owns a life insurance policy. He decided that he no longer has a need for life insurance and wants to exchange it for an annuity. To get the annuity he wants, he will have to exchange the life policy and add additional money. Which of the following is correct?

He can make an exchange which will not be taxable

Cody decided to purchase a variable annuity and invested $50,000. He made a few poor investment decisions and the market dropped. Like many investors, he decided to sell when the value was low. He surrendered the annuity and received $27,000, after the $3,000 surrender fee. Which of the following is true?

He can take an ordinary loss of $20000

Which of the following statements concerning types of annuities is not correct?

In a variable annuity, the value of the accumulation units is fixed, while the value of the annuity units during the liquidation period fluctuates.

All of the following are requirements for Qualified Longevity Annuity Contracts (QLACs), EXCEPT?

In order to be qualified, a QLAC must be a variable annuity.

What is/are the key factors in determining the need for long-term care?

Inability to perform activities of daily living.

Harry, age 63 purchased an immediate annuity. The annuity will provide monthly payments to Harry for as long as he lives. If he dies before receiving payments for 20 years, the remaining payments will go to his beneficiary. What type of annuity did Harry purchase?

Life annuity with term certain guarantee

Which of the following statements concerning the income tax treatment of long term care insurance is correct?

Limited amounts of premiums paid for traditional long term care insurance are deductible as medical expenses.

Which of the following is incorrect?

Long-term care insurance is needed for everyone.

Mr. Butler, who has recently turned 85, has been blind for two years. He has trouble walking and is unable to cook for himself since he lost his sight. His family has told him that he needs to consider entering an assisted living home. Assuming he has a qualified long-term care plan, is he considered chronically ill under the Health Insurance Portability and Accountability Act?

No, neither sight nor cooking is considered an activity of daily living.

With an equity-indexed annuity, there are several indexing methods. Which of the following is not one of them?

Oscillation neutrality method

Resident family members are covered for the purposes of Part A (Liability Coverage) for a Personal Auto Policy when operating all of the following except:

Replacement auto after 31 days

Neil is 67 years old and about to retire. His table life expectancy is 20 years. He has $25,000 in a retirement plan for which there is no lump-sum withdrawal option. Neil has 2 children and wants to make sure he receives all of the $25,000 and that he can leave his other assets to his children. He wants to participate in equity returns. Which is the most suitable for Neil?

Single life variable annuity with a term certain of 20 yrs

Meg has money in a 401(k) plan with her employer. She has no dependents or heirs and wants to maximize her monthly income. She is retiring and wants to move the money into an annuity contract. Which would be the best option for Meg?

Single premium life annuity

Patrick is age 67 and receives Social Security retirement income that covers 60 percent of his monthly expenses. He has no dependents. He would like to invest $200,000 in an annuity that will mitigate inflation and provide him with the highest monthly income. Although he has a 20-year table life expectancy, he thinks he has a much longer life expectancy. Which annuity is most suitable for Patrick?

Single premium, variable annuity

Which of the following risks can an annuity mitigate?

Superannuation and purchasing power

When Artie was 45 years old, he invested $60,000 in an annuity. Ten years later, the value of the annuity was $180,000. He took a withdrawal from the annuity in the amount of $10,000. How is the withdrawal taxed?

The $10,000 is taxable as ordinary income and is subject to the 10 percent early withdrawal penalty.

An insured with an HO-02 or an HO-03 might prefer specific insurance on certain types of personal property by means of a Scheduled Personal Property Endorsement for which of the following reasons?

The HO-02 and HO-03 have sublimits applicable to certain types of personal property.

All of the following statements are correct regarding a personal liability umbrella policy except:

The PLUP is only appropriate for individuals with a high net worth.

Which of the following statements correctly indicates a significant difference between HO-02 and HO-03?

The dwelling and other structures coverage of the HO-03 is open perils, while that of the HO-02 is named perils coverage.

Which of the following most accurately describes the criteria required for an insured to qualify for long-term care benefits for a qualified plan under the Health Insurance Portability and Accountability Act?

The insured may qualify by meeting either a or b.

Which of the following statements concerning state recovery of Medicaid costs is correct?

The state may place liens on the homes of Medicaid recipients during their lifetimes.

Automobile medical payments coverage may seem redundant to persons covered by adequate medical insurance. A major reason for purchasing automobile medical payments coverage when one has medical insurance is:

To cover medical expenses for guests or passengers

Ted and Joan Kramer have assets of $290,000 and are planning for Joan to enter a nursing home. The Kramers would like to apply for Medicaid benefits to pay for Joan's care. What should they do to spend down assets so Joan will be eligible immediately?

Transfer all of their assets to Ted, and Ted will buy a Medicaid-compliant annuity with any assets exceeding the community spouse's resource allowance.

Which of the following would be covered under the physical damage section of the PAP?

Vandalism or malicious mischief

Andrew, who is 76 years old, was diagnosed with Alzheimer's disease last week. He purchased a long-term care policy when he was 50. Would he be covered under the policy if he entered a nursing home?

Yes. He is covered because he has Alzheimer's disease.

The elderly do not constitute a homogeneous group, therefore:

a variety of services are needed

Which of the following can be excluded in a tax qualified long-term care insurance policy?

alcoholism

Diamond, who has a standard HO-3 policy, rents a room in her house to a college student. In the event that the house is seriously damaged by a fire or other peril, which of the following losses, in addition to the actual cash value of the damaged home, is Diamond likely to encounter: 1. Lost income. 2. Extra living costs. 3. Extra costs to replace the damaged personal property.

all the above

Long-term care facilities include all of the following except:

ambulatory centers

Which of the following parties to an annuity contract serves as the measuring life? 1. Owner. 2. Annuitant. 3. Beneficiary

annuitant

All of the following are activities of daily living (ADLs) as provided under the Health Insurance Portability and Accountability Act (qualified plans), except:

cognitive thinking

Section II of a HO-3 policy provides what type of protection for the homeowner?

damage to others property

Medicare is primarily for those people who meet the following eligibility requirements:

elderly

Kim, a single 40-year-old, would like to invest in the stock market but wants her principal guaranteed against losses. What type of annuity is most suitable for Kim?

equit y indexed annuity

Colson wants to participate in the stock market by purchasing a deferred annuity but wants protection against the loss of his principal. What annuity is best suited for Colson?

equity indexed annuity

When determining the percentage of an annuity income that is not taxable, the investment in the annuity is divided by the total of the expected payments to be received. What is this quotient is called?

exclusion ratio

Which of the following losses would be covered by a HO-3 policy?

filling the bathtub

There is more than one way to obtain benefits for nursing home coverage. All of the following sources provide some benefits, except:

health insurance

All of the following statements are correct regarding a Personal Auto Policy Part B (Medical Payments) coverage except:

household pet

Clara purchases an annuity with after-tax dollars and wants payments to begin next month. What type of annuity did Clara purchase? 1. immediate annuity 2. deferred annuity 3. qualified annuity 4. nonqualified annuity

immediate and nonqualified

Which of the following personal property losses would not be fully covered (less any deductible) by an unendorsed HO-3 policy?

laptop for $2400

Drake is a financial planner whose client, Bernice, is a widow. Bernice is 67 years old and about to retire, but is concerned about outliving her money since her parents both lived into their 90's. Drake has discussed the idea of a life annuity with Bernice, but she is concerned that if she were to die sooner than expected, the amount she invested might be lost. She would prefer an investment that would at least provide something for her grandson if she were to die in a short period of time without receiving back her total premiums. Which of the following is an appropriate recommendation for Drake to make to Bernice?

life annuity with cash refund

A taxpayer who itemizes may take a deduction for premiums paid for which of the following types of individually owned insurance policies? 1. long term care insurance 2. disability income insurance 3. major medical expense insurance 4. life insurance with a long term care rider

long term care insurance major medical expense insurance

Ted just retired and has several sources of income. He has Social Security and a pension from his employer, HTD Enterprises. Social Security is adjusted for inflation, but his pension is not. Ted is concerned about outliving his funds. What might he purchase to provide protection against running out of money late in retirement?

longevity annuity

Raymond lived in New Orleans during hurricane Katrina. His home was destroyed by wind damage, and he was forced to live in a hotel for three months. Which section of his homeowners policy would reimburse him for the increased living expenses associated with the hotel stay?

loss of use

Medicaid is primarily for those people who meet the following eligibility requirement:

low income

Mig purchased a straight life annuity from Confident Results Annuity Provider using funds from his 401(k) plan. Which of the following is correct?

no return on basis

The personal liability coverage of the homeowners series covers bodily injury and property damage liability in which of the following situations? 1. The liability arises out of the rendering of professional services 2. The liability arises out of the insured's use of a large motorboat (owned by the insured) powered by an inboard motor. 3. The liability arises out of the ownership of an aircraft.

none of the above

In case of a loss covered under a property insurance policy, which of the following will be required? 1. Notice of loss. 2. Protection of the undamaged property. 3. Proof of loss. 4. Appraisal.

notice of loss protection of the undamaged property proof of loss

At the age of 40, Kennedy deposited $50,000 in a nonqualified, single-premium deferred annuity. Ten years later, she surrenders the contract for a lump-sum distribution of its $100,000 value. Which of the following statements is correct?

owe a 10% penalty on $50000

All of the following statements are correct regarding a Personal Auto Policy Part C (Uninsured Motorists) coverage except:

payment for punitive damages

What is/are the goal(s) of long-term care?

promote function and independence

What is the primary function of long-term care insurance?

protect against catastrophic risks

Which of the following individuals is more likely to have a need for long-term care insurance? • Gonzo has always had menial jobs and owns a small home and little else. • Rosita has worked as a middle manager her entire career and has pension and Social Security income, in addition to a home and a modest amount of savings.

rosita

Which of the following is the highest level of care under the category of long-term care?

skilled nursing care

Pedro was seriously injured in an auto accident and was awarded $750,000 in damages. Instead of accepting the money in a lump sum, Pedro's attorney worked out with the defendant's attorney an arrangement under which Pedro would receive the following amounts: $100,000 in cash now An income of $10,000 per month, starting after one month and continuing for 5 years A lump-sum payment of $350,000 at the end of the fifth year, concurrent with the final $10,000 income check The arrangement worked out between the two sides in this case is called:

structured settlement

Under the HO-3 policy, all open-perils are covered, with some exceptions. All of the following are perils that are excluded from a HO-3 policy, except: Deliberately burning down your house. Flood. Earthquake. Tornado.

tornado

In terms of qualifying for Medicaid, which of the following is counted as income?

veterans benefits