Wrong Quiz: Insurance

An insured with a $250 deductible and an 80% - 20% coinsurance with a stop-loss limit of $5,250 would be responsible for how much of covered expenses totaling $4,700?

C) $1,140.00 Rational The correct answer is "C." The insured pays the $250 deductible. The remaining $4,450 ($4,700 - $250) is split, 20% paid by the insured ($890) totaling $1,140 ($250 + $890). The balance is paid by the insurer.

Six years ago, Sonny Gates purchased a building for $400,000. Its current replacement cost is $800,000. The building is covered for fire-related perils by Commercial Carriers Insurance Company to $400,000, with an 80% coinsurance provision and a $2,000 straight deductible. Last week, a fire broke out in the building, causing $600,000 of covered damage. What amount will Commercial Carriers Insurance Company pay for this loss?

B) $373,000 Rational The correct answer is "B." (Face value ÷ coninsurance) x Loss - Deductible [400,000 ÷ (.80 x 800,000)] x 600,000 - 2,000 ](400,000 ÷ 640,000) x 600,000] - 2,000 (.6250 x 600,000) - 2,000 375,000 - 2,000 373,000

2041Question 8 of 25Insurance Quiz 5Status The conversion privilege found in some life insurance policies refers to:

The conversion of term life to permanent life insurance.

On homeowner policy forms where other structures are covered, the coverage is usually what percent of the dwelling?

A) 10% Rational The correct answer is "A." On homeowner policy forms where other structures are covered, the coverage is usually 10% of the dwelling.

From the Ace insurance company's perspective, which of the following are elements of insurable risk? I. The loss must be made measurable. II. The loss must be inevitable. III. The loss must be catastrophic. IV. The loss must be accidental.

B) I and IV only. Rational The correct answer is "B." Losses must be in large enough insuring groups to make numbers predictable, accidental, measurable, and not catastrophic in order to be insurable. n-CHAM Not Catastrophic Homogeneous Accidental Measurable

Which of the following is true of a Modified Endowment Contract (MEC)? I. No money can be withdrawn from the contract without incurring a 10% penalty. II. Once a contract is a MEC, it remains so even after a 1035 Exchange for a different policy. III. Any withdrawals are made on a LIFO basis. IV. The contract owner can borrow the money out of the policy without incurring the penalty.

C) II and III only. Rational The correct answer is "C." Option "I" is false because once all the earnings are withdrawn and tax and penalty paid on them, the basis is not taxed, nor is there a penalty. Option "IV" is false because even loans from a MEC are taxable and the penalty is applied.

No-fault Insurance

No-fault systems generally exempt individuals from the usual liability for causing body injury if they do so in a car collision; when individuals purchase "liability" insurance under those regimes, the insurance covers bodily injury of the insured and the insured's passengers caused by a car collision, regardless of which party would be liable under ordinary common law tort rules. No-fault insurance has the goal of lowering premium costs by avoiding expensive litigation over the causes of the collision, while providing quick payments for injuries or loss of property.

2072Question 18 of 25Insurance Quiz 4Status Which of the following is a mandatory provision for health insurance policies? A) Grace period and reinstatement. B) Occupation. C) Misstatement of age. D) Suicide.

Rational The correct answer is "A." All of the others are optional provisions for health insurance policies.

2039Question 22 of 25Insurance Quiz 5Status There are a number of definitions used to determine whether an insured is disabled. The split definition of disability includes the following two: A) 'Own occupation' changing to 'modified any occupation'. B) 'Modified any occupation' changing to 'own occupation'. C) 'Own occupation' changing to 'any occupation'. D) 'Any occupation' changing to 'own occupation'.

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

A successful architect wants to purchase disability income insurance. She is concerned about becoming totally disabled, but also about a reduction in income if she is obliged to reduce her workload because of a less-than-total disability. To satisfy these concerns, which of the following should be included in her disability income coverage? A) Residual disability benefits. B) A change-of-occupation provision. C) Dismemberment benefits. D) A relation of earnings-to-insurance provision.

Rational The correct answer is "A." Residual benefits cover partial disability and directly address the concern that the client has expressed. Options "B," "C" and "D" are valid provisions, but do not in any way address the client's area of concern. Residual Benefits: If insured goes back to work at less pay, then the policy will pay the difference between current income and income prior to diability

2073Question 20 of 25Insurance Quiz 4Status The HMO model under which the subscribers have the greatest flexibility is: A) The staffing model. B) The IPA model. C) The group model. D) The network model.

Rational The correct answer is "B." The IPA allows the greatest flexibility among HMO coverages.

2030Question 23 of 25Insurance Quiz 5Status Which of the following statements best describes the probation period in a disability income policy? A) The period of time that must elapse before the policy is activated. B) The period of time available for the insurer to cancel coverage under the policy. C) The period of time the insured must wait before specified illnesses or injuries are covered. D) The period of time the insured must wait before benefits are payable.

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

2166Question 8 of 23Insurance Quiz 7Status What is the total length of time a 35-year old employee must have worked to be considered fully insured in order to qualify for disability insurance under social security? A) 10 quarters. B) 15 quarters. C) 20 quarters. D) 40 quarters.

Rational The correct answer is "D." The disability recipient must have worked 40 quarters (or periods) in total to be eligible for benefits, and of these, 20 quarters must have occurred in the 40 quarters immediately before becoming disabled.

Which of the following statements are true regarding the ownership of individual life insurance? I. A policy can only be issued to the insured. II. Generally, assigning a policy requires proof that the insured is still "insurable" (meaning still in good health). III. Only a person with an insurable interest, generally a relative, a business associate, or lender, can be named as a beneficiary. IV. The owner can assign (transfer) the policy to whomever he or she chooses, even if the assignee has NO insurable interest.

D) IV only. Rational The correct answer is "D." Option "I" - An individual with an insurable interest in the insured can purchase a policy. Option "II" - Policy assignments can be made regardless of the insured's health as long as the policy is in force. Option "III" - The policy owner can name anyone a beneficiary.

A client recently purchased a new home from a builder for $150,000 including the lot valued at $40,000. How much insurance would you recommend that your client purchase to cover full replacement of the house in the event of a loss?

B) $110,000 Rational The correct answer is "B." This is the value of the entire package minus the value of the land (e.g., $150,000 - $40,000 = $110,000).

Jerry Rivers owns a $250,000 level-term life policy which he purchased five years ago. He has paid premiums of $400 per year for the past five years. He also owns a $125,000 whole life policy which he purchased fifteen years ago. He has paid premiums of $2,000 per year for the past 15 years, and now the policy has a cash surrender value of $40,000. Over the years, the whole life policy has paid cash dividends to Jerry. The cumulative dividends paid to Jerry since inception totals $5,000. Jerry has decided to cancel his $125,000 whole life policy. Which statement is true?

B) Jerry has a taxable gain of $15,000. This gain will be treated as ordinary income. Rational The correct answer is "B." Upon surrendering his whole life policy, Jerry received $40,000 cash value where he had paid only $30,000 - $5,000 (dividends) = $25,000 (basis). $40,000 - $25,000 = $15,000 is treated as ordinary income, taxable in the year it is received.

Which of the following provisions allow a life insurance company to refuse to make payment on a policy claim based on the amount of time the policy has been in force. I. Incontestable Clause. II. Suicide Clause. III. Entire Contract Clause. IV. Ownership Clause.

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

One of your clients, Fred Majors, age 70, a widower with NO close relatives, has crippling a rheumatoid arthritis. Fred is unable to walk and is confined to a custodial nursing home. Which of the following programs is/are most likely to pay benefits towards the cost of Fred's nursing home stay? I. Medicare may pay for up to 100 days of care after a 20-day deductible. II. Long-term care insurance may pay part if coverage of the facility type is broad enough. III. Private medical insurance may pay part if it is a comprehensive major medical policy. IV. Medicaid may pay if the client has income and assets below state thresholds.

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

2052Question 9 of 25Insurance Quiz 4Status An insured, age 25, with full coverage and all provisions possible on his policy is found to be disabled and uninsurable currently and in the future, due to a gradually incapacitating terminal condition. Life expectancy is 12 to 15 years as the illness runs its course. Which of the following would be applicable and also which should our insured be advised to exercise in this case? (Assume all of these benefits that follow are provided on the policy.) I. Waiver of premium. II. Accidental Death Benefit. III. Guaranteed purchase option. IV. Living Benefits Rider.

D) I, III and IV only. Rational The correct answer is "D." The client will be in need of all but the accidental death benefit given the description provided above.

Of the following policy options and provisions, which are dividend options available to policyholders of a participating whole life insurance policy? I. Reduced paid-up insurance. II. Paid-up additions. III. Accumulate at interest. IV. Extended term.

D) II and III only. Rational The correct answer is "D." Only Options "II" and "III" are dividend options. The others are non-forfeiture options.

2034Question 15 of 25Insurance Quiz 5Status Which of the following statements about the conversion privilege is/are true regarding group life insurance plan provided by employers? I. The policy may be converted from a permanent product to a term product. II. The policy may be converted if the insured provides evidence of insurability. III. At conversion, the billing is switched to the insured. IV. The policy may be converted from a term policy to an individual permanent life policy.

D) III and IV only. Rational The correct answer is "D." Option "I" - Switching from a permanent to a term product is not a conversion available in any group life insurance. Option "II" - These group plan term-to-permanent conversions will occur without evidence of insurability.

Rank from most likely to the least likely the possibility of an increase in annual premiums on the following life insurance policies on a male age 35. Premiums are projected to vanish at 65. After reviewing each company's Insurance Questionnaire, it is determined that all companies use realistic expense, mortality and lapse assumptions. All companies have good historical results for policyholders, and an assumption is made that a 30-year Treasury bond yields 7% and all companies will experience similar future investment returns. I. Interest sensitive whole life insurance (illustrated at current rate of 8.5% and funded at full target premium). II. Universal life insurance (illustrated at current projected new money rate of 6.75%). III. Whole life insurance 9.25% base policy, with 5.5% guarantee; 75% term rider -- ledger illustrated at company's portfolio rate of 9.5% -- company's net investment yield is 9.66% for this current year. IV. Variable universal life insurance (illustrated to endow at age 100, run at 8% gross and allocated 100% to common stock sub-account).

D) III, II, IV and then I. Rational The correct answer is "D." Statement I - When they tell us that the product is "funded at full target premium" that means the insured is paying the premium as if the policy is not crediting any interest. If that's the case, then the premium isn't going to increase. Statement II - This policy pays interest at the new money rate. If the new money rate changes, the premium will change. Statement III - This policy will definitely have to increase the premiums because treasury bonds are paying a lower interest rate than what the company's portfolio is illustrated to return. Treasury bonds are paying 7%, which is what the insurance company is invested in. There's no way for the insurance company to continue crediting 9.5% when they are only earning 7%. This premium will have to increase to offset the actual interest rate the company is earning. Statement IV - This policy is likely to outperform because it is invested in common stock. We know that Statement "I" is the least likely to raise their premium, so the answer must have a "I" at the end, which are Answers "C" and "D." The question is, is "II" or "III" the most likely to increase their premiums. I would vote "III" because they cannot continue to credit insurance policies with 9.5% when they are only earning 7%. Based on the process of elimination, we would choose "D."

2175Question 10 of 23Insurance Quiz 7Status Casey Russell, age 45, comes to see you because he has just been diagnosed with a terminal illness. His doctor told him he will NOT be able to work more than another 4 months and that his life expectancy is only 12 months. Casey also tells you that he has always been self-employed and with the exception of the last two years, has NEVER paid into Social Security. What benefits will be available to Casey and his wife from Social Security as a result of his disability? I. Monthly disability benefit. II. Lump-sum disability. III. Monthly benefit to spouse. IV. Medicare Part A. V. Medicare Part B.

D) None of the above. Rational The correct answer is "D." Casey is neither currently nor fully insured under OASDI; therefore, ineligible for monthly disability benefit and Lump-sum disability benefit (Options "I" and "II"). The monthly benefit to spouse (Option "III") would occur after Casey's death if there were minor children involved, but none are mentioned. A person must be 65 to qualify for Medicare benefits.

Elimination vs Probation period

Elimination Periods: This is the amount of time you have to wait before benefits are paid after your disability begins - the longer the elimination period, the lower the premiums. The most popular elimination period ranges from 30 days to 90 days, but can be longer. This waiting period acts as a deductible, forcing the insured to bear part of the loss. Also important to remember is that payments normally begin 30 days after your elimination period has ended. Probation Period: This is the time period a policy must be in force before it covers the insured for specific perils such as undisclosed pre-existing conditions. This protects the insurance company from selling a policy to someone who is ill or recovering from an illness or other condition. Typically 15-30 days after inception.

2046Question 25 of 25Insurance Quiz 5Status These policies guarantee renewability, not level premiums. Premium levels can be changed as long as it is done for an entire rate class. A) Guaranteed renewable. B) Non-cancelable. C) Cancelable. D) Renewable.

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

Direct recognition programs used with life insurance policies are best described in the following statement: A) Any amount of cash that is removed from the policy is reflected in a decrease in the amount of dividends and interest paid on that policy. B) Mutual companies that are owned by their policy holders directly pay profits to the policy owners. C) Very large policies indicate a recognized tendency of the company to write primarily term insurance. D) If the agent has received many awards from his company, he would be a good one to select.

Rational The correct answer is "A." Direct recognition programs are best described as follows: Any amount of cash that is removed from the policy is reflected in a decrease in the amount of dividends and interest paid on that policy. There are two different methods insurance companies use to handle the loaned cash value — direct recognition and non-direct recognition. In a non-direct recognition company, the earnings rate on cash value is totally unaffected by any loans against cash value. In a direct recognition company, the earnings rates on loaned cash value are affected both positively and negatively when the cash value is used as collateral.

2012Question 25 of 25Insurance Quiz 6Status If a permanent life policy provides a guaranteed option to purchase additional insurance on the original policy, that option will include all of the following features in the new policy, except: A) Guaranteed purchase option. B) Disability waiver of premium. C) Accidental death benefit. D) Non-forfeiture provisions.

Rational The correct answer is "A." Guaranteed purchase options cannot be purchased with guaranteed purchase option provisions. It would be like making the third wish for three more wishes.

2167Question 13 of 23Insurance Quiz 7Status Kathleen recently died. She was fully insured and left behind her husband Robert (age 60), their two children, Nora (age 18 and in college) and David (age 13), and her dependent single mother Joy (age 70). All of the following are true, except? A) Robert is entitled to a maximum survivorship benefit of 71.5% of Kathleen's PIA subject to the family maximum. B) Joy is entitled to a survivorship benefit of 82.5% of Kathleen's PIA subject to the family maximum. C) Nora is not eligible for survivorship benefits. D) David is entitled to a survivorship benefit of 75% of Kathleen's PIA subject to the family maximum.

Rational The correct answer is "A." Her husband, Robert, who is age 60 is entitled to a survivorship benefit of 71.5% of Kathleen's PIA based on retirement but he would be entitled to 75% since he is caring for a child under 16 (David). Her mother, Joy, age 70, who was dependent on Kathleen before her death is entitled to a survivorship benefit of 82.5% of Kathleen's PIA. Her daughter, Nora, age 18 and in college is not eligible for survivorship benefits because she is not less than 18 and being in college is not an exception to the rule. Her son, David, age 13 is entitled to a survivorship benefit of 75% of Kathleen's PIA. Retirement Survivorship Survivorship Disability Fully Insured Fully Insured Currently Insured Based on Age Participant 100% Deceased Deceased 100% Child Under 18 50% 75% 75% 50% Spouse w/ Child under 16 50% 75% 75% 50% Spouse Age 65 50% 100% 0% 50% Retirement Survivorship Survivorship Disability Fully Insured Fully Insured Currently Insured Based on Age Spouse Age 62 40% 0.83 0 40% Child Under 18 50% 75% 75% 50% Spouse Age 60 N/A 72% 0% N/A Dependent Parent (age 62) 0% 75/82.5% 0% 0%

2172Question 21 of 23Insurance Quiz 7Status Jerry, age 66 is a U.S. citizen, an avid cyclist and currently has Medicare part A and B. He recently spent two-weeks traveling through France and cycling through some of the country side. One day while cycling he had an accident and required an ambulance to take him to the hospital, he spent three nights in the hospital while they evaluated him and provided medical treatment for a concussion and a broken arm. How much coverage will Medicare provide? A) Medicare will not provide any coverage while outside of the U.S. B) Part A will cover inpatient hospital care coverage while Jerry was admitted to the hospital. C) Part B will cover any emergency ambulance service to transport Jerry to the hospital. D) Medicare will not provide coverage for the hospital stay or ambulance services, but will provide prescription drug coverage for any medication Jerry purchases immediately after leaving the hospital, but while still in France.

Rational The correct answer is "A." In most situations, Medicare does not provide health care coverage for services received outside of the U.S. There are three exceptions to this rule: 1 - You're in the U.S. when you have a medical emergency and the foreign hospital is closer than the nearest U.S. hospital. 2 - You're traveling through Canada without unreasonable delay by the most direct route between Alaska and another state when a medical emergency occurs and the Canadian hospital is closer than the nearest U.S. hospital. 3 - You live in the U.S. and the foreign hospital is closer to your home than the nearest U.S. hospital, regardless of whether it's an emergency or not.

2169Question 15 of 23Insurance Quiz 7Status Which of the following statements concerning the OASDHI earnings test for the current year is correct? A) Some part-time work is allowed without the loss of retirement benefits for those under normal age retirement. B) The earnings test does not apply after the age of 62. C) Interest and dividends are included in the earnings test. D) The annual exempt amount for a person at normal age retirement is $41,880.

Rational The correct answer is "A." The earnings test does not apply after normal age retirement. The monthly exempt amount is $3,490 ($41,880 annualized) in 2016 for those months in the year of normal retirement age BEFORE you actually reach normal retirement age. The test uses only earned income. No passive or portfolio income is used in calculating the earnings.

What is the main responsibility of the underwriting department of a life insurance company? A) To guard against adverse selection. B) To set a limit on the amount of insurance issued. C) To set adequate insurance rates. D) To avoid exposures that could result in loss.

Rational The correct answer is "A." The limit on the amount of insurance (Option "B") is determined by company policy. Adequate insurance rates (Option "C") is set by the state. In regard to Option "D", it is the nature of insurance to cover losses.

Which of the following statements concerning the choice of an entity versus a cross-purchase partnership buy-sell agreement funded with insurance is FALSE? A) The use of existing insurance to fund the agreement causes a transfer-for-value problem if an entity agreement is selected, but does NOT cause this problem if a cross-purchase approach is used. B) A stock redemption should be selected if the surviving partners expect to sell their interests during their lifetimes. C) An entity approach may solve the affordability problem if one partner is significantly older than the other. D) An entity agreement becomes more desirable as the number of partners included in the agreement increases.

Rational The correct answer is "A." The use of existing insurance does not cause a transfer-for-value situation in both entity and cross-purchase situations because the entity is presumed the same as the individual in a partnership. (B) is correct because if you do the cross purchase then each owner would have to sell, surrender, or hold onto the policy on the departing owner. Also, the departing owner would have multiple policies, each covering the other owners that (s)he would need to do something with. (C) is correct because the if we have owners significantly older than other owners then the young owners will have to pay a lot more in premiums to insure the older owners' lives in a cross-purchase agreement. (D) is correct because the number of policies needed in a cross purchase is N * (N-1).

2156Question 19 of 23Insurance Quiz 7Status Which of the following statement(s) concerning the choice of a stock redemption (entity agreement) versus a cross-purchase partnership buy-sell agreement funded with insurance is FALSE? A) The use of existing insurance to fund the agreement causes a transfer-for-value problem if an entity agreement is selected, but does NOT cause this problem if a cross-purchase approach is used. B) A cross-purchase should be selected if the surviving partners expect to sell their business interest during their lifetimes. C) An entity approach may solve the affordability problem if one partner is significantly older than the others. D) An entity agreement becomes more desirable as the number of partners included in the agreement increases.

Rational The correct answer is "A." Transfer-for-value problems can be created if existing policies are transferred between shareholders of a corporation in a cross-purchase agreement.

Bill Commisky is an agent for the Advantage Insurance Company. For the last year, the company has informed its agents not to write auto insurance policies on flower shops. However, when Flowers R Us applied for a policy, Bill bound the coverage. Flowers R Us had a driver totally destroy a truck 6 weeks later. What is the obligation of the Advantage Insurance Company in this situation? (Note: Consider carefully the supporting rationale in selecting your answer.) A) Advantage is required to pay because Bill had express authority to bind the company. B) Advantage is required to pay because Bill had apparent authority to do what the public reasonably believes he can do. C) Advantage is NOT required to pay because Bill is the agent of the insured. D) Advantage is NOT required to pay because Bill failed to disclose full knowledge of the situation.

Rational The correct answer is "B. There are two forces at play here which cause liability for the insurer. First, Bill was an agent with clear binding authority. As a result, the policy must be bound. The second thing that occurs which renders the existing answer correct is the six weeks that it took while the insurer said nothing regarding the coverage bound on a supposedly unacceptable risk.

Your client, John Kent, purchased a limited payment whole life policy 15 years ago. He would like to stop paying the premiums on his policy, but continues to need the same amount of insurance. If he did so, which one of the following is a non-forfeiture option he could use? A) Reduced paid-up insurance. B) Extended term insurance. C) Installments for a fixed period. D) One-year term.

Rational The correct answer is "B." An extended term insurance is correct because extended term insurance is the only choice that is a non-forfeiture option. Option "A" - Although this is a non-forfeiture provision, the amount of insurance coverage would be reduced. Option "C" is a settlement option, and Option "D" is a dividend option.

Your client, John Hotas, owns a whole-life insurance policy with a death benefit of $100,000 on the life of his wife Mary. The policy has a cash value of $6,500. The dividends are used to purchase additional paid-up life insurance. Their daughter, Ester, is the named beneficiary. If Mary were to die today, which of the following is true? A) John continues to own the policy for the benefit of the daughter. B) A taxable gift of the life insurance proceeds has been made from John to his daughter. C) John receives an amount equal to the cash value, and the daughter receives the remainder of the life insurance proceeds tax-free. D) The daughter must be at least 14-years old in order to collect the proceeds.

Rational The correct answer is "B." Because John owns the policy on Mary's life, when Mary dies and the proceeds go to Ester, their daughter, as beneficiary, they are considered a gift from the policy owner (John) to his daughter. Had Mary owned the policy on her life, the proceeds would have passed to her daughter tax-free

Clients who wish to decide for themselves what the premium amounts will be on their life insurance policy and how the investments will be made, should buy: A) Term life insurance. B) Variable universal life insurance. C) Interest sensitive whole life. D) Universal life insurance.

Rational The correct answer is "B." Clients should buy variable universal life insurance so they have flexibility regarding premium amounts.

This particular type of life insurance replacement may be achievable through use of a conversion privilege that is generally available on the original policies. A) Replacing universal insurance with a term policy. B) Replacing term insurance with cash value insurance. C) Replacing cash value insurance with another cash value policy. D) Replacing cash value insurance with term insurance.

Rational The correct answer is "B." Conversion privileges are generally part of the term insurance policy that allows them to be changed over to cash value insurance without proof of insurability.

2035Question 18 of 25Insurance Quiz 5Status As a rule, when group long-term disability income insurance premiums are paid for an employee by the C corporation for which they work, all disability benefit amounts received by an employee are: A) NOT includible in the income of the employee for federal tax purposes without regard to any other sources of income. B) Includible in the income of the employee for federal tax purposes without regard to any other sources of income. C) NOT includible in the income of the employee for federal tax purposes if any portion of the benefit is reduced/offset by other income. D) Includible in the income of the employee for federal tax purposes if any portion of the benefit is reduced/offset by other income.

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

2029Question 3 of 25Insurance Quiz 5Status Your client needs additional insurance. He already has several large permanent policies with your company. Which of the following dividend options should you advise your client to use on his existing policies if he was just told that the new policy he is applying for can be issued, but will be heavily rated? A) One-year term option. B) Paid-up additions option. C) Extended term option. D) Reduced paid-up option.

Rational The correct answer is "B." Due to the rating, paid-up additions is a dividend option that represents an inexpensive way to add coverage without concern to health risks or ratings. Option "A" is generally NOT the best choice because the client is in poor health (highly rated) and one-year term (or annual renewable term) will be very expensive and Options "C" and "D" are non-forfeiture provisions.

2157Question 5 of 23Insurance Quiz 7Status Your client, Dennis and Daughter, Inc. (often referred to as DAD by the owners) is a C corporation with gross receipts of $3,000,000 for the past four years. The net earnings to the firm for the most recent fiscal year were $120,000. There are two shareholders, Dennis and his daughter, Denise. They have recently had an outside consultant perform a valuation of the firm using the capitalization method and a .10 capitalization rate. Based on this information, Dennis and Denise have decided to execute a buy-sell agreement. Using the above information, answer the following question. All the following would be true in a cross-purchase plan, if Dennis passed away first, EXCEPT: A) Life insurance owned by Denise will not be included in Dennis' probate estate. B) Life insurance and/or disability insurance premiums to fund the agreement are tax deductible as an ordinary business expense. C) Denise would receive an increased cost basis in Dennis' stock equal to the amount paid to redeem the shares from Dennis' estate. D) The transaction side-steps the entity and thus avoids constructive dividend concerns.

Rational The correct answer is "B." Insurance premiums to fund buy-sell agreements in a cross-purchase plan are not tax deductible. In the case of an entity agreement, where the firm owns the policies, the premium would also NOT be tax deductible.

2162Question 20 of 23Insurance Quiz 7Status Andrew, age 62, has been married 4 times during his life to the following women: Jennifer - they were married for 2 years after Andrew graduated from college. Jennifer has never remarried. She is 65 years old. Katie - they were married for 15 years. Katie is remarried and is 65 years old. Linda - they were married for 12 years. Linda has never remarried and she is currently 65 years old. Deirdre - they are still married and have been for 6 years. She is age 65. Andrew is fully insured but does not plan to begin taking benefits until age 66. Which of the above individuals are currently entitled to retirement benefits based on Andrew's account? A) Deidre only. B) Linda only. C) Jennifer and Linda. D) All of them are entitled to benefits based on his account.

Rational The correct answer is "B." Linda is eligible because she was married at least 10 years and has not remarried. She can take benefits regardless of whether Andrew has begun benefits. Jennifer is not eligible because she was not married to Andrew for at least 10 years. Katie is not eligible because she remarried. Deirdre is not eligible. Even though she is currently married to Andrew and is old enough to receive benefits, she cannot begin benefits on Andrew's account until he actually starts taking benefits.

Under the basic approaches commonly in use in the no-fault auto insurance dilemma, which of the following best describes the plan where injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold are reached? A) Extended first party coverage. B) Modified no-fault coverage. C) Pure no-fault coverage. D) Unsatisfied judgment no-fault coverage.

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

The policy which insures an individual when "the insured is unable to perform the duties pertaining to any gainful occupation for which they are suited by education, experience, or training" best describes what definition of disability? A) Any Occupation. B) Modified Any Occupation. C) Split Definition. D) Loss of Income.

Rational The correct answer is "B." Option "A" - Any occupation would say you are employable even in the severest disabilities. Option "C" - Split definition uses own occupation to begin with and moves toward modified any occupation. This allows for training in a new field. Option "D" - Loss of income avoids having to define disability.

2047Question 20 of 25Insurance Quiz 5Status The 'principle of indemnity' refers to which of the following: A) The right of a party to collect from third parties who are responsible for having caused the loss. B) The right of the insured to be made whole after a loss occurs. C) The right of the insured to bring tort action against the tortfeasor. D) The stake or interest in a matter, person, property, or other business concern that might be damaged if the peril insured against occurs.

Rational The correct answer is "B." Option "A" is vicarious liability. Option "C" is the right to bring suit. Option "D" is an insurable interest.

2069Question 1 of 25Insurance Quiz 4Status Under the definition of long term care, the highest level of care provision which calls for services where residents are seen regularly by physicians is known as: A) Intensive nursing care. B) Skilled nursing care. C) Intermediate care. D) Custodial care.

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

The best life insurance policy for the payment of federal estate taxes for a 50-year old couple with illiquid assets is: A) An individual whole-life policy on each spouse on a cross-ownership basis. B) A joint and last-to-die life insurance policy owned by an irrevocable trust. C) A joint last-to-die life insurance policy owned by the spouse with the larger estate. D) A joint and last-to-die life insurance policy owned by the spouse with the smaller estate.

Rational The correct answer is "B." The "last-to-die" will pay on the second death, and if it is held in a trust, it will not add to the insured estate tax due because it will not increase the taxable estate.

2045Question 10 of 25Insurance Quiz 5Status Where no-fault auto insurance is involved, which of the following is a correct match? A) Pure no-fault: Several states have enacted this system. B) Verbal threshold: Law suits may be allowed when there is a fatal injury. C) Modified no-fault: In no way impedes the right of tort action. D) Pure no-fault: Allows for tort action under certain conditions.

Rational The correct answer is "B." There is no "pure no-fault" in existence in any state in the U.S. Modified no-fault allows suits when verbal and dollar thresholds have been crossed. Dollar threshold is damage occurring above a certain amount, not a limit to actionable compensatory amounts.

Jerry Rivers owns a $250,000 level-term life policy which he purchased five years ago. He has paid premiums of $400 per year for the past five years. He also owns a $125,000 whole life policy which he purchased fifteen years ago. He has paid premiums of $2,000 per year for the past 15 years, and now the policy has a cash surrender value of $40,000. Over the years, the whole life policy has paid cash dividends to Jerry. The cumulative dividends paid to Jerry since inception totals $5,000. Assume the whole life policy is a participating policy and has paid Jerry $5,000 in dividends since inception. Which statement is true? A) The cash dividends received by Jerry to date are treated as taxable. B) If Jerry died today, his beneficiary would receive a death benefit of $120,000 from the whole life policy. C) The cash dividends received by Jerry to date are treated as non-taxable. D) The cash dividends received by Jerry should have been reported as a long-term capital gain on his personal income tax return in the year they were paid.

Rational The correct answer is "C." Dividends which are less than the amount of premiums paid are considered a return of that excess premium to the payor and are therefore non-taxable. Dividends paid to the premium payor above the amount of premium paid are fully taxable as income when earned.

Your client, George Wu, owns a great deal of fine art and antiques. He wishes to know, in such an instance when fine arts or antiques are insured under a homeowners policy by an endorsement, how is the coverage written? A) Coverage is usually on a replacement cost basis. B) Coverage is usually on an actual cash value basis. C) Coverage is usually provided on an appraised value. D) The perils are the same as the homeowners policy to which the endorsement is attached.

Rational The correct answer is "C." Fine arts and antiques are generally insured on a homeowners policy with an endorsement known as a "personal articles floater" which is a form of Inland Marine insurance. This coverage is provided on an appraised value.

2043Question 17 of 25Insurance Quiz 5Status Which of the following statements is incorrect in regard to the regulation of the insurance industry? A) Insurance costs are unknown at the time the premium is established and unregulated insurers might charge too little or too much. B) Beneficiaries are usually entirely different from the insured. They are not present to protect their self interest when the contract is made. C) Upon death of an insured under a life insurance policy, federal regulators are able to secure income tax proceeds prior to lump sum payments. D) Insurance is a service that is paid for in advance, but its benefits are reaped in the future.

Rational The correct answer is "C." Generally, there is no income tax on life insurance proceeds except in the case of transfer for value sales of a policy.

Non-forfeiture rights of policyholders guarantee that there will be a: A) Policy face value. B) Death benefits for survivors. C) Cash value. D) Premium refund.

Rational The correct answer is "C." Non-forfeiture rights (or provisions) arrange an orderly legal structure to assure monies paid on an insurance policy are not simply absorbed by the company without recourse in the event that an insured decides to terminate coverage. Two other such provisions include "reduced paid-up" and "extended term."

Temporary insurance coverage, which is available based on an applicant's ability to provide evidence of insurability, may be provided by: A) Evidentiary binder. B) Evidence of consideration. C) Conditional receipt. D) Delivery of contract.

Rational The correct answer is "C." Note that while the conditional receipt sets forth certain terms of temporary life insurance coverage, it will not be issued without a completed application and payment of an initial premium.

Which of the following statements accurately reflects the tax implications of the purchase of disability insurance? A) Employer paid policy on key employee = benefits taxable to employer. B) Employer paid policy on key employees = non-taxable benefits to employee. C) Employer paid policy on employee with employer as beneficiary = not deductible to employer. D) Business overhead expense policy = benefits are tax free to individual owner/operator who purchases policy on himself.

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

Business interruption insurance: A) Covers favorable terms in a lease agreement should a fire render a building uninhabitable. B) Covers expenses caused by the occurrence of a loss to a covered peril which the insured does not own. C) Covers indemnity for businesses during the period where they are rebuilding and restoring after covered losses have forced a halt of business as usual. D) Covers any extra expenses incurred to continued operation.

Rational The correct answer is "C." Option "A" is leasehold interest coverage. Option "B" is contingent extra expense insurance. Option "D" is extra expense insurance.

2054Question 7 of 25Insurance Quiz 4Status All of the following require a special endorsement rider or a separate policy for coverage to be effective, except: A) A house involved in flooding. B) A house involved in an earthquake. C) A car involved in flooding. D) A piece of jewelry valued at $10,000.

Rational The correct answer is "C." Personal auto policies are the only ones that offer coverage for flooding. On a homeowners policy, water damage is covered "from the sky coming down," but not "from the ground coming up."

2163Question 18 of 23Insurance Quiz 7Status Which of the following individuals will be eligible for Medicare coverage A and B? A) A 63-year old federal government employee hired in 1972. B) A corporate director, age 55, whose only income is from being a corporate director. C) A 68-year old proprietor filing Schedule F. D) A 65-year old business owner who, over his lifetime, has received only dividend income from the S-corp business

Rational The correct answer is "C." Persons "A" and "B" are too young. Person "D" did not receive any income which was ever subject to self-employment or social security taxes, therefore, did not ever become qualified.

An insured who wishes to leave the death proceeds to a spouse, with continued payments to children for a specific period of time after the death of the spousal beneficiary might consider the following settlement option: A) Pure Life Annuity. B) Reduced Paid-Up Insurance. C) Life Income Period Certain. D) One Year Term Insurance.

Rational The correct answer is "C." Pure life stops when the first recipient dies. One year term insurance is a dividend option. Reduced paid-up is a non-forfeiture provision.

2168Question 16 of 23Insurance Quiz 7Status Kathleen recently died. She was currently insured for Social Security. Which of the following persons would be entitled to survivorship benefits based on her work record? A) Her husband, Robert, who is age 65. B) Her mother, Joy, age 70, who was a dependent of Kathleen before her death. C) Her daughter, Nora, age 18 and in high school. D) None of the above.

Rational The correct answer is "C." Since she was only currently insured Robert and Joy are not entitled to survivorship benefits. Her daughter is still eligible for benefits even though she is 18 because she is in high school. Retirement Survivorship Survivorship Disability Fully Insured Fully Insured Currently Insured Based on Age Participant 100% Deceased Deceased 100% Child Under 18 50% 75% 75% 50% Spouse w/ Child under 16 50% 75% 75% 50% Spouse Age 65 50% 100% 0% 50% Retirement Survivorship Survivorship Disability Fully Insured Fully Insured Currently Insured Based on Age Spouse Age 62 40% 0.83 0 40% Child Under 18 50% 75% 75% 50% Spouse Age 60 N/A 72% 0% N/A Dependent Parent (age 62) 0% 75/82.5% 0% 0%

2165Question 7 of 23Insurance Quiz 7Status For the purposes of defining disability under the Social Security Disability Income Plan, the program uses the following definition or definitions for disability: A) Own occupation. B) Modified any occupation. C) Any occupation. D) Split definition.

Rational The correct answer is "C." The Social Security Disability Income Plan uses the "any occupation" definition for disability.

The group model of the HMO: A) Is a corporation and medical staff members including doctors, nurses and clerical staff are employees of the HMO. B) Is a type of HMO organization that is made up of physicians who have their own office locations. C) Is an arrangement that is sometimes known as the network model. D) Has no gatekeeper within the structure of this model.

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

Bob Smith is an agent for the ACME Insurance Company. ACME and Bob signed an agency agreement yesterday, which gives Bob the authority to write policies for ACME. What type of authority is the agency agreement? A) Implied. B) Apparent. C) Expressed. D) Res Ipsa Locquitor.

Rational The correct answer is "C." This is a clear example of expressed authority.

2051Question 23 of 25Insurance Quiz 4Status The person who commits the tort will not benefit or be relieved of obligation and responsibility just because the victim has insurance. This best describes: A) Negligence per se. B) Vicarious liability. C) Collateral source rule. D) Absolute liability.

Rational The correct answer is "C." This is the collateral source rule. The survival of a tort action means that even in the event of death of the victim or the tortfeasor, the tort will remain actionable. Negligence per se regards a violation of a legal standard.

2003Question 16 of 25Insurance Quiz 6Status Your client is considering the purchase of a Variable Universal Life (VUL) policy and asks for your advice about this type of insurance. Which of the following is NOT a feature of this type of policy? A) Flexibility as to premium payments. B) Choice as to investment funds. C) Availability of a guaranteed minimum death benefit. D) Availability of a guaranteed minimum cash value.

Rational The correct answer is "D." A VUL policy is unbundled allowing for option "A" and it is variable, allowing for options "B" and "C." Under no circumstances does a variable policy guarantee cash value. It will, however, guarantee a minimum death benefit as long as premiums are paid.

What is one characteristic of a Comprehensive Personal Liability (CPL) policy? A) It generally includes coverage for legal liability that may arise as a result of professional errors and omissions. B) It provides coverage limited to claims of catastrophic proportions. C) It provides coverage for legal liability stemming from business activities of the insured by use of a simple extension of coverage amendment. D) It may be part of a standard ISO homeowners policy or a stand-alone policy.

Rational The correct answer is "D." CPL policies are never used to cover Errors and Omissions types of coverage requirements, nor are they used to cover business pursuits.

Which of the following represents the LEAST favorable means of securing long-term care coverage? A) Continuing Care Retirement Communities. B) Disability Income Policy Rider. C) Association Arrangements. D) Life Insurance Policy Rider.

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

2016Question 21 of 25Insurance Quiz 6Status According to common law, if both parties are to blame in a given accident, each is guilty and may not collect against the other even if the defendant was 90% to blame and the plaintiff only 10% to blame. This is known as: A) Comparative negligence. B) Assumed risk. C) Last chance clear. D) Contributory negligence.

Rational The correct answer is "D." Contributory negligence was a defense that prevented many frivolous law suits, but also resulted in some very justifiable cases being thrown out of court. This doctrine has been supplanted for the most part by comparative negligence, but as a result law suits have become far more frequent and frivolous.

2026Question 11 of 25Insurance Quiz 5Status If the insured under a disability income insurance policy moves to a more hazardous job and receives an increase in compensation with the job change, what will be the likely effect on the disability coverage? A) The relation of earnings to insurance clause will require an adjustment in the benefits payable. B) The definition of disability will automatically change from "own-occupation" to "any-occupation". C) The change of risk clause will require new underwriting of the risk. D) The change of occupation provision will permit the insurer to reduce benefits payable.

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

2014Question 24 of 25Insurance Quiz 6Status Which one of the following risk management techniques is accurately paired with the appropriate activity? A) Risk avoidance - installing sprinkler systems. B) Risk retention - wearing protective clothing. C) Risk reduction - establishing a general partnership. D) Risk sharing - incorporation.

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

Jennifer Anton was named by her husband, John Anton, as irrevocable beneficiary of his life insurance policy based on a court order. John would now like to borrow from the policy's cash value. What right does John have to the cash value? A) John can borrow the cash value, but he may not surrender the policy because of Jennifer's interest in the policy. B) Jennifer must allow John to borrow from the cash value because he is the owner of the policy and as such has a right to do so. C) John may borrow from the cash value because Jennifer has only a contingent interest in the policy. D) John can only borrow from the cash value with Jennifer's written approval because she has a conditionally vested interest in the policy.

Rational The correct answer is "D." Irrevocable beneficiaries have all of the rights of the policy owner. In this case, the insured must secure permission from the irrevocable beneficiary with regard to any activity or dispositive change in the policy.

2150Question 22 of 25Insurance Quiz 4Status John and Mary Goldman have a combined estate of $900,000 including a $250,000 life insurance policy on John's life owned by John. The Goldmans have two children. John wants Mary to receive the income from the life insurance policy if he dies, but wants the remainder proceeds to go to his children after Mary's death. John and Mary have recently executed wills with testamentary trusts. What is the best beneficiary designation for John's life insurance policy to achieve his objectives? A) His wife Mary. B) His two children. C) A charitable remainder trust. D) His testamentary trust.

Rational The correct answer is "D." None of the other alternatives give John the post mortem control he desires. The testamentary trust will provide the surviving spouse with access to the proceeds. Any amount remaining in the trust at the death of the surviving spouse will pass to the cildren.

2071Question 17 of 25Insurance Quiz 4Status Which of the following would appear on the declaration section of a policy? A) What the insurer agrees to do. B) The perils against which the insurer will provide coverage. C) The exclusions to coverage. D) The insured's name.

Rational The correct answer is "D." Option "A" is the insuring agreement. Option "B" is the coverage section. Option "C" pertains to policy exclusions. The insured's name appears on the "declaration" page.

2064Question 3 of 25Insurance Quiz 4Status An insurance contract is known as an aleatory contract. This means that: A) The insurance contract is said to be a one-sided contract. B) The insurance contract is a personal contract between the insured and the insurer. C) The terms of the contract are those written and set forth by one of the parties and agreed to and accepted in their entirety by the other party. D) The insurance contract is an agreement affected by chance occurring when the involved parties pay an unequal number of dollars.

Rational The correct answer is "D." Option "A" is unilateral. Option "B" is a personal contract. Option "C" describes a contract of adhesion.

2032Question 24 of 25Insurance Quiz 5Status Which one of the following statements about life insurance, endowments, and annuity products and their tax attributes is correct? A) Modified endowment contracts do NOT provide a tax-free death benefit if the policyholder dies prior to age 59 1/2. B) Tax-deferred annuities owned by a corporation are eligible for tax-deferred accumulation. C) Permanent life insurance owned by a pension plan is 100% income tax-free to the beneficiary of the plan. D) If a person purchased a life and 20-year term-certain immediate annuity at age 50, there would be NO premature distribution penalty.

Rational The correct answer is "D." Option "D" is correct because immediate annuities are not subject to a premature distribution penalty tax. This only applies to deferred annuities. In a MEC all withdrawals are considered to be above the basis (earnings first). Therefore all distributions are subject to tax until the insured's basis is reached on a LIFO basis, but death benefits are still income tax free.

Which of the following statements are true regarding the ownership of individual life insurance? I. A policy can only be issued to the insured. II. Generally, assigning a policy requires proof that the insured is still "insurable" (meaning still in good health). III. Only a person with an insurable interest, generally a relative, a business associate, or lender, can be named as a beneficiary. IV. The owner can assign (transfer) the policy to whomever he or she chooses, even if the assignee has NO insurable interest.

Rational The correct answer is "D." Option "I" - An individual with an insurable interest in the insured can purchase a policy. Option "II" - Policy assignments can be made regardless of the insured's health as long as the policy is in force. Option "III" - The policy owner can name anyone a beneficiary.

2070Question 8 of 25Insurance Quiz 4Status Inland marine insurance covers all of the following except: A) Imports. B) Floaters. C) Domestics shipments. D) The hull of the ship.

Rational The correct answer is "D." The hull of the ship is covered under ocean marine insurance.

2058Question 14 of 25Insurance Quiz 4Status In the Commercial General Liability contract, which of the following parts does not belong: A) Coverage A, bodily injury and property damage liability. B) Coverage B, personal and advertising liability. C) Coverage C, medical payments. D) Coverage D, other structures.

Rational The correct answer is "D." There is no "other structures" coverage on a CGL contract.

Self-insurance

Self-insure is a method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs.

2022Question 5 of 25Insurance Quiz 6Status Lisa is a condo owner and has an HO-6 policy. She purchased the condo for $400,000. Her HO-6 policy is an open peril policy and has a face value of $360,000. Her contents are covered on a named peril basis with $100,000 in coverage. She also has an 80% coinsurance requirement. A tornado hits the building and completely destroys the roof of the condo. The cost to repair the roof is $50,000. How much would her condo policy cover for the roof damage?

A) $0. Rational The correct answer is "A." An HO-6 policy does not provide coverage for the building or roof. The building and roof are covered by the condo association policy, which covers all exterior walls and roof. The HO-6 policy covers all interior walls for a condo.

2017Question 8 of 25Insurance Quiz 6Status Rodney is being admitted to the hospital with a preapproved covered expense for procedures that will cost $12,225. Rodney's policy has a $300 deductible per person. This deductible must be met by two family members. This requirement has been satisfied already this year. The policy also has a $5,000 coinsurance feature with an 80/20 split. What is the amount the insurer will pay for the procedure that Rodney is about to receive?

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

Dave is 46, married and has an annual salary of $60,000. His employer offers group term life insurance coverage equal to 2 times his annual salary. The employer's cost for Dave is $.40 per $1,000 of which Dave pays $.15 per month per $1,000. The Table 1 (Section 79) rate for 45-49 year olds is $0.29 per $1,000. What must Dave include in his taxable income this year resulting from the group term insurance? Round your answer to the nearest dollar.

A) $28 Rational The correct answer is "A." Dave is paying $216 each year for the coverage ($120 x 0.15 x 12). The Table I cost is calculated by subtracting $50,000 (the tax-free amount allowed under Section 79) from the $120,000 actually purchased, dividing the remainder by $1,000, multiplying the Table 1 rate of 0.29 times 12. ($120,000 - $50,000 / $1,000 x 0.29 x 12). So, the Table 1 premium is $244 (rounded.) Subtract the $216 already paid by Dave from the $244 Table 1 premium to determine the additional taxable income ($244 - $216 = $28).

Which of the following best describes how the reinstatement clause of a life insurance policy operates? A) During a specified period, the policy owner may reinstate a lapsed policy upon payment of past-due premiums and proof of insurability. Rational The correct answer is "A." All activity must occur 'during' the available period and not 'after' the specified period. The policy must not have been surrendered. A new incontestable period begins upon renewal and reinstatement of the policy and the insured must attest to the fact that there has been no change in the insured's health. B) After a specified period, the insurer may challenge the policy on grounds of the reinstatement of the incontestable clause. C) During a specified period, the policy owner may pay back the proceeds of a surrendered policy and have it reinstated. D) After a specified period, the insurer is prohibited from challenging the policy on the basis of fraud.

A) During a specified period, the policy owner may reinstate a lapsed policy upon payment of past-due premiums and proof of insurability. Rational The correct answer is "A." All activity must occur 'during' the available period and not 'after' the specified period. The policy must not have been surrendered. A new incontestable period begins upon renewal and reinstatement of the policy and the insured must attest to the fact that there has been no change in the insured's health.

An HO-3 policy (Special form "open perils") is also known as an "all risks policy". It covers all losses except those specifically named as exclusions in the policy. If there are NO endorsements, which one of the following perils is excluded?

A) Flood. Rational The correct answer is "A." Flood is excluded from homeowners. Remember, water damage done by water coming from the sky down (as in rain) is covered, but water coming from the ground up (as in flood) is not covered.

2002Question 10 of 25Insurance Quiz 6Status An employer subject to COBRA must provide a covered employee with the option of continuing health insurance coverage in which of the following circumstances? I. The employer has terminated its health plan. II. The employee has been terminated for incompetence. III. The employer has gone out of business. IV. The employee has been terminated for gross misconduct.

A) I & II only. Rational The correct answer is "A." If an employer has terminated the plan available, there can be no COBRA benefit. Also, gross misconduct will remove one from COBRA eligibility. If the employer has gone out of business, then no health plan is available.

Bob Bradley has a typical major medical policy with a $250 deductible per occurrence and a $1,000,000 benefit maximum per occurrence. The policy has the usual 80%-20% coinsurance or percentage participation clause, with an out-of-pocket limit of $5,000 per occurrence applicable to the insured's coinsurance obligation. During a recent hospital confinement, Bob ran up the following bills: Hospital room-and-board charges $4,500 Long-distance phone charges $ 150 Hospital charges for tests and medication $3,360 Physician's visits in hospital $1,100 Replacement cost of broken eyeglasses $ 250 TOTAL $9,360 How much of this total will be paid by Bob's insurer?

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

2171Question 17 of 23Insurance Quiz 7 Status Casey Russell, age 45, comes to see you because he has just been diagnosed with a terminal illness. His doctor told him he will NOT be able to work more than another 4 months and that his life expectancy is only 12 months. Casey also tells you that he has always been self-employed and with the exception of the last two years, has NEVER paid into Social Security. What benefits will be available to Casey and his family from Social Security as a result of his death? Assume his wife is also 45-years old, and his two children are ages 15 and 19. I. Monthly survivor's benefit for the worker's child, under age 18 (or age 18 if the child is a full-time high school or elementary school student). II. Monthly survivor's benefit for the worker's spouse, or former spouse, who is caring for a dependent child under age 16 who is eligible for benefits. III. Monthly survivor's benefit for the worker's spouse until age 65. IV. Lump-sum death benefits of $255 for the worker's spouse or child.

B) I, II and IV only. Rational The correct answer is "B." Monthly survivor's benefit for the worker's spouse occur only if there are minor children for the surviving spouse to raise. Once the children are of age, benefits to the spouse cease.

In selecting insurance coverage for a client, the prudent planner should consult which of the following independent sources for determining company strength? I. A.M. Best Reports II. Standard and Poor's III. Moody's Investors Services IV. Dun & Bradstreet

C) I, II and III only. Rational The correct answer is "C." Options "I," "II" and "III" all provide rating services within the insurance industry. Dun & Bradstreet concerns itself more with credit standings of a firm not with insurance.

2173Question 11 of 23Insurance Quiz 7Status What benefits are available to the survivors of a deceased worker who was currently insured but not fully insured at death? I. Lump sum death benefit of $255. II. Mother or father's spousal benefit for caring for a qualifying child under age 16. III. Income benefits to a child under age18. IV. Survivor benefit to spouse (assume not remarried) at their full retirement age.

C) I, II and III only. Rational The correct answer is "C." There are no survivor benefits to a surviving spouse with no qualifying child.

2006Question 12 of 25Insurance Quiz 6Status Which of the following statements regarding assignments is/are true? I. A collateral assignment is a temporary transfer of some or all of the ownership rights on condition such rights revert to the assignee. II. A collateral assignment is a temporary transfer of some or all of the ownership rights whereby such rights revert to the assignor upon satisfaction of agreed-upon conditions. III. A collateral assignment is a temporary transfer of some or all of the ownership rights on condition such rights revert to the insurance company upon satisfaction of agreed-upon conditions. IV. An absolute assignment is an irrevocable transfer of all ownership rights which can be accomplished through a sale or gift.

C) II and IV only. Rational The correct answer is "C." Option "I" describes an absolute assignment, and Option "III" almost describes a collateral assignment, but reversion of rights return to the insured, not the insurance company.

2020Question 19 of 25Insurance Quiz 6Status Which of the following combinations describes a lump sum payment made at the beginning, by the annuitant, on an annuity payable to one person at current equity market investment rates, payable for life or a set number of years, even to the annuitant's beneficiary if need be, beginning at some future date: I. Single pay, individual. II. Installment, individual. III. Variable, immediate, life period certain. IV. Variable, deferred, life period certain.

D) I and IV only. Rational The correct answer is "D." The annuity described in the question is a single pay, individual, variable, deferred, life period certain annuity.

2048Question 4 of 25Insurance Quiz 5Status Of the following vehicles, which are excluded from coverage from the personal automobile policy? I. Motorcycles. II. Company cars. III. A car borrowed from a friend for one time use. IV. A vehicle used in auto racing competition.

D) I, II and IV only. Rational The correct answer is "D." Option "I" - Motorcycles must have their own coverage. Option "II" - Company cars must be covered under a company business auto policy. Option "IV" - Racing vehicles are not covered on personal auto policies.

A client has asked you, as her planner, to review her life policies. The variable life insurance contract that she owns may be characterized as a/an: I. Unilateral contract. II. Aleatory contract. III. Conditional contract. IV. Personal contract of adhesion.

D) I, II, III and IV. Rational The correct answer is "D." All choices accurately describe the variable life contract.

2158Question 6 of 23Insurance Quiz 7Status Your client, Dennis and Daughter, Inc. (often referred to as DAD by the assuming owners) is a C corporation with gross receipts of $3,000,000 for the past four years. The net earnings to the firm for the most recent fiscal year were $120,000. There are two shareholders, Dennis and his daughter, Denise. They have recently had an outside consultant perform a valuation of the firm using the capitalization method and a .10 capitalization rate. Based on this information, Dennis and Denise have decided to implement a buy-sell agreement. Using the above information, answer the following question. Which of the following is true for Dennis and Daughter, Inc. (DAD) as it applies to a stock redemption plan (entity agreement), assuming Denise passes away first? I. DAD does not qualify for the "small corporation" exemption. II. When DAD redeems the stock from Denise's estate, there is potential dividend treatment because Dennis is a beneficiary of Denise's estate. III. DAD shares owned by Denise are considered owned by Dennis, as well, under the rules of attribution. IV. The life insurance purchased to fund the buy-sell agreement will trigger the Alternative Minimum Tax (AMT) for DAD. V. The life insurance policy owned by DAD on Dennis' life no longer needs to fund a stock redemption due to Denise's passing, and can be purchased by Dennis without negative income tax implications under the transfer for value rule.

D) II, III and V only. Rational The correct answer is "D." DAD does qualify for the small business exemption to AMT, so the life insurance won't trigger AMT.

A supplier of your company experiences fire damage at their plant. They cannot provide an essential part to you for a number of weeks. This, of course, delays your operation. You are covered by a very extensive insurance. For this reason, you would go to collect from your: A) Contingent business interruption. B) Extra expense insurance. C) Business interruption. D) Lease hold interest coverage.

Rational The correct answer is "A." You would go to collect from your contingent business interruption insurance because it is a business which you do not own that has a direct effect on your own business.

Collateral Source Rule

The Collateral Source rule mandates that damages awarded in court cannot be reduced by any amount of other sources of income used to cover the damages suffered by the victim. The Collateral Source rule is a legal edict that prevents evidence from being admitted in court that proves the plaintiff (or victim) is receiving compensation for injuries from other sources, such as insurance. This doctrine has been contested in court in recent years by those who feel that victims should not be able to sue tortfeasors again for damages that were already paid from another source. Tortfeasor: a person or entity who commits a tort