Chapter T/F
In response to ethical concerns involving unethical behavior in annuity sales, the NAIC has drafted a model regulation requiring insurance producers to have reasonable grounds for believing that a proposed annuity is suitable for the consumer.
True
In risk management, each risk can be measured in terms of frequency, severity, and variation.
True
In uninsured motorists coverage, uninsured motorists include drivers of hit-and-run vehicles.
True
Indexed annuities offer a minimum guaranteed interest rate.
True
Inland marine insurance provides coverage against a variety of losses, including those to domestic goods in transit by truck, customers' clothes at a dry cleaner, fine art, and television towers.
True
Medicare Part D (prescription drug coverage) is a mandatory benefit financed by additional FICA taxes.
False. Participation in Medicare Part D is voluntary.
Partnership policies are typically structured as non-tax-qualified policies.
False. Partnership policies must be designed as tax-qualified policies.
The federal gift tax applies to lifetime transfers of property as well as to transfers occurring at death.
False. The gift tax applies only to gifts during the donor's lifetime.
Although the Commercial General Liability (CGL) Coverage Form excludes coverage for most liability from pollution, numerous endorsements and other forms can cover the pollution loss exposure.
True
Among other things, reinsurance can help insurers spread large losses and reduce the surplus drain associated with writing new business.
True
An individual's human life value may arise out of family or business relationships.
True
Applied ethics is the study of how to apply general moral beliefs to particular situations.
True
As a general legal principle, whenever the wording in an endorsement or rider conflicts with the terms of the policy to which it is attached, the endorsement or rider takes precedence.
True
At all working ages, the probability of being disabled for at least 90 consecutive days is much greater than the chance of dying.
True
At the state level, insurance is regulated by legislative, administrative, and court action.
True
Because uncertainty is a state of mind, two clients facing the same risk situation can have varying degrees of uncertainty.
True
Benefit carve-outs are often used as a method of cost containment through the use of managed care techniques.
True
Benefits from an individually purchased medical expense policy are generally received free of federal income taxation.
True
Benefits under the medical payments coverage in the homeowners policy are paid only to persons other than an insured.
True
Boatowners and yacht policies frequently contain warranties.
True
Both life and property-liability insurers invest more heavily in bonds than in stocks.
True
Both the account holder of an HSA and the account holder's employer may make a contribution to the account.
True
Business overhead expense policies are available to cover many of the ongoing costs of operating a business while the business owner is totally disabled.
True
Buy-sell agreements triggered by the disability of an owner can be funded with disability policies.
True
By electing a Medicare Advantage plan, a Medicare beneficiary may have more comprehensive benefits than those provided by original Medicare.
True
Clients with expensive jewelry and silverware should consider adding a scheduled personal property endorsement to their homeowners policy.
True
Commercial property insurance can be written on either a named-perils or open-perils basis.
True
Consumer-directed medical expense plans give employees increased choices and responsibilities for care.
True
Damage to an attached garage is covered under Coverage A in an HO-3 policy, but damage to a detached garage is covered under Coverage B.
True
Deductibles are a form of partial risk retention that can often be used to handle high-frequency, low-severity losses efficiently.
True
Deductibles both minimize attitudinal hazard and lower premium costs.
True
Employer-provided short-term disability income plans typically provide benefits for a limited period of time, such as 6 months or less.
True
FAIR plans are often able to provide coverage on hard-to-insure residential property.
True
Favorable investment results account for the largest portion of policyowner dividends paid by participating policies.
True
Group Medicare supplements that employers offer to their retirees may differ from individual Medicare supplement policies.
True
Group disability income contracts typically specify that no benefits will be paid unless the employee is under the care of a physician.
True
Group long-term disability income contracts often exclude benefits for disabilities that result from preexisting conditions.
True
High-deductible medical expense plans give employees an incentive to avoid unnecessary medical care.
True
If Jim has an accident while driving his friend's car and is sued for $250,000 for bodily injury and property damage, the friend's liability insurance would pay first and Jim's liability coverage would be excess and thus pay only if needed.
True
If Ken has an umbrella policy with a $1 million limit and a $250 self-insured retention, and he is sued for $100,000 for an act covered under the umbrella policy but not under the required underlying coverages, the umbrella policy would pay all but $250 of the judgment.
True
If Sally transfers all incidents of ownership in a life insurance policy on her life to her grown son through a gift and she dies a year later, the life insurance is included in her estate.
True
If Teresa commits suicide 5 years after purchasing her whole life policy, the insurer will pay the face amount to the beneficiary.
True
If a client has a $300,000 single limit of liability in his PAP, he would be fully covered if sued for $150,000 for bodily injury and $20,000 for property damage as a result of an auto accident that was his fault.
True
If a group of substandard risks is to be treated fairly, the degree of extra mortality the group represents and the approximate period in life when the extra mortality is likely to occur must both be known within reasonable limits.
True
If a person continues to work during the period of delayed retirement, it is possible for a worker's primary insurance amount to be higher than it would have been at full retirement age.
True
If a person purchases a life insurance policy that the state insurance department has not approved, the policyowner can seek a refund of premiums paid or seek to enforce the policy.
True
If an application is attached to a life insurance contract, it becomes part of the contract.
True
If properly designed, a structured settlement can provide periodic payments of income that the claimant receives tax free during his or her life and that the claimant's beneficiaries receive thereafter for the balance of any guaranteed period.
True
If the insured dies or surrenders the policy while a loan is outstanding, the insurer deducts the loan and accrued interest from the amount otherwise payable.
True
If there is an ambiguous clause in an insurance contract, the courts will typically interpret the clause in favor of the policyowner.
True
In a liability insurance policy, the insurance company has an obligation to provide a defense at its expense.
True
In addition to covering bodily injury and property damage liability, a typical personal umbrella policy also covers personal injury liability.
True
In addition to financial strength, other important criteria for selecting an insurer are its willingness to pay claims, the service it provides, and the cost of its products.
True
In an HO-3 policy, the personal property of any insured is covered while located anywhere in the world.
True
In exchange for investment flexibility, variable life insurance shifts the investment risk to the policyowner and provides no guarantee of either interest rate or minimum cash value.
True
In most states, clients' motorcycles and snowmobiles can be insured under a Personal Auto Policy (PAP) by endorsement.
True
Insurance companies often require repeated verification that an individual's disability still satisfies the qualifications for benefit eligibility.
True
Insurance transfers the financial risk of losses to the insurer.
True
Insurers must comply with state laws that govern the types of securities they may purchase for investment.
True
It is common practice to remove the extra premium upon proof that the insured is no longer substandard.
True
It is important to consider the symbolism of our actions and how they may be interpreted by other people.
True
Key life insurance marketing systems include general agents, branch offices managed by company employees, and personal producing general agents (PPGAs).
True
Liability coverage in an unendorsed homeowners policy excludes coverage for liability arising out of business and professional activities as well as the use of an auto.
True
Long-term disability plans often limit benefits to salaried employees because claims experience has traditionally been less favorable for hourly paid employees.
True
Loss is the undesirable result of risk
True
Loss of income, continuing expenses, and extra expenses while a business is closed following a direct physical damage loss can be covered under bus¬iness income insurance.
True
Major medical plans contain internal limits for certain types of medical expenses.
True
Managed care plans typically encourage preventive care and the attainment of healthier lifestyles.
True
Many major medical expense plans place a limit on the amount of out-of-pocket expenses that a covered person must bear during any time period.
True
Actual loses are much more common than loss exposures
False
The extra expense a client incurs by living in a hotel after a fire has damaged his home is an example of a direct loss
False
Under facultative reinsurance, the insurer agrees in advance to transfer some types of risk, and the reinsurer agrees to accept those risks.
False
As defined in this course, risk is the probability or chance of loss
False - possibility
On the basis of where they are domiciled, insurers are considered foreign if incorporated in another country.
False - they are considered alien
A Medicare prescription drug plan with the standard benefit structure pays 90 percent of prescription drug costs after a beneficiary satisfies a $500 deductible.
False. A Medicare prescription drug plan with the standard benefit structure pays 75 percent of the next $2,970 of prescription drug costs after an annual deductible of $325 (in 2013) has been met. Benefits then cease until a beneficiary's total drug cost equals $4,750 (in 2013). Subsequently, the plan pays 95 percent of covered drug costs. These dollar figures are subject to indexing.
Subject to certain dollar limits, every PAP automatically covers transportation expenses, such as the costs of renting a car, while a covered auto is out of service because of a collision.
False. A PAP covers transportation expenses while a covered auto is out of service because of a collision only when the policy provides collision coverage on that covered auto.
Social Security retirement benefits begin automatically at a beneficiary's full retirement age.
False. A beneficiary must apply for benefits in order for them to begin.
A high-deductible health plan used with an HSA must apply the policy deductible to any preventive care the policy covers.
False. A high-deductible health plan used with an HSA is permitted to waive any deductible requirements for preventive care.
Most life insurance agents have their companies' authority to settle claims.
False. A life insurance agent may become involved as an intermediary (such as by delivering a death proceeds check to a beneficiary), but not as an adjuster with authority to settle a claim.
Under the Health Insurance Portability and Accountability Act (HIPAA), a "Qualified long-term care insurance contract" must provide for a cash surrender value that can be borrowed if an insured is seriously ill.
False. A long-term care insurance contract cannot provide for a cash surrender value or other money that can be borrowed or paid, assigned, or pledged as collateral for a loan.
A major disadvantage of the financial needs analysis approach is that it fails to take into account factors that may be difficult to forecast, such as Social Security benefits and future earnings by a spouse.
False. A major advantage of the financial needs analysis approach is that it does take into account factors that would be available in the event of the insured's death, such as Social Security benefits and future earnings by a spouse.
A Medicare beneficiary who was released last week from the hospital but is going back after 7 days will start a new benefit period for Part A purposes.
False. A new 90-day benefit period begins after an individual has been out of a hospital or skilled-nursing facility for 60 consecutive days.
A person born in 1962 will be eligible to receive full Social Security retirement benefits when he or she reaches age 65.
False. A person born in 1962 will be eligible to receive full Social Security benefits when he or she reaches age 67.
A person who owns and lives in a condominium unit should carry an HO-4 Contents Broad Form, because the association covers the building and detached structures.
False. A person who owns and lives in a condominium should carry an HO-6 Unit-Owners Form. A renter should buy an HO-4 Contents Broad Form.
Benefits from a fully contributory group disability income insurance plan are includible in a recipient's gross income.
False. Benefits from a fully contributory plan are received free of income taxation.
With a Sec. 1035 exchange, a policyowner is able to avoid taxation when canceling one life insurance policy, collecting the cash surrender value, and using it to purchase a similar life insurance policy.
False. A taxable event occurs when an existing insurance policy with a cash value is surrendered, even if the policyowner then uses the proceeds to purchase another policy on the same insured. A 1035 exchange can avoid taxation, but it must involve a transaction that takes place directly between the insurers.
A valid offer to buy life insurance may be transmitted orally.
False. A written application and the first premium payment are usually submitted by the applicant as the offer to the insurer through the agent, who issues a conditional receipt.
Although accidental death benefit riders typically exclude death by suicide, they do pay for most deaths caused by disease.
False. Accidental death benefit riders do not pay for deaths caused by disease.
Account holders can invest HSA funds in cash value life insurance policies.
False. Account holders can use many types of investments for HSA funds. However, life insurance is a prohibited investment vehicle.
The CGL Coverage Form excludes coverage for advertising injury liability.
False. Advertising injury liability is covered under Coverage B of a CGL Coverage Form.
Most sick-leave plans are open to part-time employees.
False. Almost all sick-leave plans are limited to permanent full-time employees.
Standard policy provision laws require that life insurance policies include certain provisions that are worded precisely as contained in the statute.
False. Although certain provisions must be included, insurers can select the actual wording as long as it is at least as favorable to the policyowner as the statutory language.
The definition of disability under the Social Security program is less restrictive than that in most individual or group disability income contracts.
False. Although most employed persons are potentially eligible for disability benefits under the Social Security program, its definition of disability is more restrictive than that in most individual or group contracts.
Stock and mutual insurers are both owned by stockholders, who elect the board of directors.
False. Although stock insurers are owned by stockholders, who elect the board of directors, mutuals are owned by their policyowners, who elect the board of directors.
An exclusive-provider organization (EPO) is so named because it allows members to pay an additional premium for the right to see the most prominent specialist in a medical field.
False. An EPO does not provide coverage outside the preferred-provider network, except in those infrequent cases when the network does not contain an appropriate specialist.
An HO-3 policy covers damage to the insured's residence building against open perils, including earthquake and flood.
False. An HO-3 policy covers damage to the insured's residence against open perils but excludes, among other things, earthquake and flood.
An installment refund annuity promises to keep paying installment benefits to the annuitant and/or beneficiary until the total equals the purchase price of the annuity plus interest at a guaranteed rate.
False. An installment refund annuity makes payments for the life of the annuitant. If the annuitant dies before receiving monthly payments equal to the purchase price of the annuity, the annuity also pays installment benefits to the annuitant's estate and/or beneficiary until the total equals the purchase price of the annuity.
When representing an insurance company, an insurance agent has only the express authority spelled out in the agency contract.
False. An insurance agent has implied authority and may act with apparent authority, as well as having the express authority spelled out in the agency contract.
An insurance contract is a bilateral contract.
False. An insurance contract is a unilateral contract.
Annuities serve essentially the same function as life insurance.
False. Annuities serve the function of liquidation of a principal sum, regardless of how it was created. Life insurance creates an estate or principal sum.
Annuity considerations are generally calculated using the same mortality rates as are used in calculating life insurance premiums.
False. Annuity considerations are not calculated using the same mortality rates as those used in calculating life insurance premiums.
For purposes of group medical expense benefits, a 27-year-old woman is fully covered as a dependent child under her father's coverage if she is living at home and is a full-time student.
False. Any unmarried dependent children who are full-time students are usually covered only up to age 23 or 26.
Planners should advise their clients to buy any-occupation individual disability income policies because they are very liberal in defining disability.
False. Any-occupation policies have more strict definitions of disability than policies using own-occupation definitions of disability.
Independent adjusters usually represent the public, in contrast to staff adjusters, who represent insurers.
False. As with staff adjusters, independent adjusters represent insurers. Public adjusters represent the public.
HMO coverage for individuals is typically less expensive than an individual major medical policy.
False. Because of the emphasis on first-dollar coverage and preventive medicine, HMO coverage for individuals is typically more expensive than an individual major medical policy.
Property and liability insurance policies are freely assignable by policyowners without the insurer's approval.
False. Because they are personal agreements between the insurer and the policyowner, property and liability insurance policies are not freely assignable by policyowners. They have to obtain the insurer's approval to affect a transfer. Life insurance policies, however, are freely assignable by policyowners.
Subject to dollar maximums, Part B of Medicare provides benefits for eyeglasses, hearing aids, and orthopedic shoes.
False. Benefits for eyeglasses, hearing aids, and orthopedic shoes are excluded.
Benefits from key employee disability policies are payable to the wife or husband of the disabled key employee.
False. Benefits from key employee disability policies are payable to the business entity when the insured key employee is disabled. These policies are not designed to provide continuance of salary for the key employee.
Long-term care policies written on a per diem basis pay for actual long-term care expenses up to a maximum amount.
False. Benefits paid are a specified amount per day that is independent of the actual charge for long-term care.
Both group and individual medical expense policies typically cover custodial care in a nursing home.
False. Both group and individual medical expense policies exclude custodial care.
With variable life insurance, cash values reflect investment performance, but death benefit amounts do not.
False. Both the cash value and the level of death benefits reflect investment performance.
Cost controls of HMOs tend to discourage preventive care.
False. By providing and encouraging preventive care, HMOs attempt to detect and treat medical conditions at an early stage, thereby avoiding expensive medical treatment in the future.
COBRA coverage is automatic for qualified beneficiaries who lose their group health coverage because of a qualifying event.
False. COBRA coverage is not automatic but must be elected.
A 16-year-old client can always void his auto insurance policy because he is still a minor.
False. Clients under the age of 21 (18 in some states) are considered minors and can void many types of insurance contracts and get a full refund of premiums paid. However, state laws may hold that 16-year-olds have the legal capacity to enter into binding auto insurance contracts.
Commercial property insurance can cover only buildings and business personal property of the insured.
False. Commercial property insurance can cover personal property of others in the care, custody, or control of the insured, as well as buildings and business personal property of the insured.
Compensatory damages are intended to punish a wrongdoer whose outrageous conduct has caused injury or damage to another party.
False. Compensatory damages are intended to indemnify a person for the costs resulting from his or her injury or damage.
Financial responsibility laws require owners of autos to carry liability insurance before a vehicle can be registered.
False. Compulsory insurance laws require owners of autos to carry liability insurance before a vehicle can be regis¬tered. Financial responsibility laws only require proof of future financial responsibility under certain circumstances.
Coverage under a group long-term care insurance contract must be offered through a cafeteria plan to receive favorable tax treatment.
False. Coverage under a group long-term care insurance contract cannot be offered through a cafeteria plan on a tax-favored basis.
One advantage to the insured of having a long-term care insurance policy that uses a pool of money concept is that daily benefit payments from the pool of money can exceed the otherwise stated policy benefit.
False. Daily benefits from a pool of money cannot exceed the daily policy benefits stated in the policy
Decreasing term life insurance is sold primarily by agents who also sell property insurance.
False. Decreasing term insurance is sold primarily through mortgage lenders.
Because of the highly competitive market, the cost of auto insurance differs little from company to company.
False. Despite the highly competitive market, the cost of auto insurance differs significantly from company to company in most states.
Most prescription drug plans cover nonprescription drugs as long as a physician orders them on a prescription form.
False. Drugs for which prescriptions are not required by law are usually not covered, even if a physician orders them on a prescription form.
During the liquidation period, a variable annuity promises to pay a variable number of annuity units of fixed value in each payment period.
False. During liquidation, a variable annuity pays a fixed number of annuity units of variable value in each payment period.
ERISA requires that self-funded, employer-provided medical expense plans include state-mandated benefits.
False. ERISA exempts noninsured plans from state insurance mandates. This exemption includes a self-funded, employer-provided medical expense plan.
Enrollment in Medicare Part B is automatic for anyone reaching age 65 as long as he or she has been paying FICA taxes.
False. Enrollment is automatic only if a beneficiary was receiving retirement benefits before age 65. However, the beneficiary can reject the Part B coverage. Anyone else must specifically elect coverage.
Only 10 percent of Medicare recipients have some type of coverage to supplement Medicare.
False. Estimates indicate that about two-thirds of Medicare recipients have some type of coverage to supplement Medicare.
Uninsured and underinsured motorists coverages are unnecessary in states with compulsory liability laws.
False. Even in compulsory liability states, there are many uninsured and even unlicensed drivers. Also, many drivers carry only the limits required by law and thus are underinsured. Therefore, uninsured and underinsured motorists coverages are necessary even in states with compulsory liability laws.
Due to workers' compensation laws, employers are exempt from suits for injuries to employees.
False. Even with workers' compensation laws, employers can be sued for injuries to employees.
Both excess liability policies and commercial umbrella policies include drop-down coverage for claims the underlying coverages exclude.
False. Excess liability policies do not include drop-down coverage for claims excluded by the underlying coverages, but commercial umbrella policies often do provide such coverage.
Extended care facility benefits cover rest or domiciliary care for the aged.
False. Extended care facility benefits are not designed to cover rest or domiciliary care for the aged. These benefits are for people who require convalescence under supervised skilled nursing.
Because of federal income tax reform in 1984, endowment policies play a major role in financial planning in the United States today.
False. Federal income tax reform in 1984 eliminated the tax-free buildup of cash values in most endowment policies, so few endowment policies are sold today.
The key to assessing the financial strength of an insurer is the size of the insurer.
False. Financial strength is determined by the insurer's ability to pay claims.
Supplemental medical and dental benefits for executives are normally self-funded.
False. For tax reasons, supplemental medical and dental benefits for executives are usually insured.
PPOs typically provide benefits for a much wider array of medical procedures if nonnetwork providers are used.
False. For the most part, PPOs pay benefits for the same medical procedures, whether they are performed by a network or nonnetwork provider. However, a few procedures may be covered only if they are received from network providers.
On the basis of where they are domiciled, insurers are considered foreign if incorporated in another country.
False. Foreign insurers are organized in another state; alien insurers are incorporated in another country.
An innocent misrepresentation by an applicant for insurance constitutes fraud.
False. Fraud involves an active intent to deceive. The applicant making the statement must know that it is false or make the statement in reckless disregard of whether it is true or false.
Group short-term disability income contracts generally have 30-day waiting periods.
False. Group short-term disability income contracts typically have no waiting period for disabilities that result from accidents, but a waiting period of 1 to 7 days for disabilities that result from sickness.
HMOs typically provide out-of-area coverage for all medical services because their scope is national.
False. HMOs may operate in a geographic area no larger than a single metropolitan area, and most HMOs offer out-of-area coverage only in the case of medical emergencies.
Basic hospice care benefits cover treatments that attempt to cure seriously ill patients.
False. Hospice care does not attempt to cure medical conditions but tries to ease terminally ill patients' physical and psychological pain associated with dying.
If Jim rented a car, damaged it, and was sued by the rental company, he would be covered under the liability coverage of his PAP for the property damage to the rental car.
False. If Jim rented a car, damaged it, and was sued by the rental company, he would be covered under the collision or other-than-collision coverages of his PAP for the property damage to the rental car. Liability coverage excludes damage to property rented to the insured.
If Pete was only 20 percent at fault for an auto accident in a state that relies on the contributory negligence standard, he could collect 80 percent of his damages from the other party.
False. If Pete was only 20 percent at fault for an auto accident in a state that relies on the contributory negligence standard, he could collect no damages from the other party.
If Rachel purchases a life annuity with 20 years certain to liquidate her retirement savings and is still alive at the end of 20 years, her annuity benefit payments will cease.
False. If Rachel is still alive at the end of 20 years, her annuity benefit payments will continue until her death.
If a client has $100,000/$300,000/$50,000 limits of liability in her PAP, she would be fully covered if sued for $150,000 for bodily injury and $20,000 for property damage by the driver of another car who is injured as a result of an auto accident that was the client's fault.
False. If a client has $100,000/$300,000/$50,000 limits of liability in her PAP, she would be fully covered for the $20,000 of property damage, but she would be covered only to the extent of $100,000 of the other driver's bodily injury claim.
If Hank hits a deer, the damage to his car would be paid under the collision coverage of his PAP.
False. If a client hits a deer, the damage to his car would be paid under the other-than-collision coverage.
If the premium for a whole life insurance policy is overdue at the end of the grace period, the policy will lapse and automatically pay the cash surrender value to the policyowner.
False. If the premium for a whole life insurance policy is not paid by the end of the grace period, the policy will lapse and automatically go under a nonforfeiture option, usually extended term. The policyowner then has a period of time to decide to keep the policy under the automatic option, surrender it for its cash value, or switch to the paid-up whole life option.
In a homeowners policy, losses under all property coverages are settled on a replacement cost basis.
False. In a homeowners policy, losses to the dwelling under Coverage A are settled on a replacement cost basis, while losses under personal property Coverage C are settled on an actual cash value basis (unless an endorsement is added for replacement cost).
In a homeowners policy, the amount payable for the loss of money and securities is limited only for theft.
False. In a homeowners policy, the amount payable for the loss of money and securities is limited for all perils.
In a traditional split-dollar plan, the executive contributed an amount equal to the annual increase in the policy's cash surrender value, while the corporation paid the remainder of the annual premium.
False. In a traditional split-dollar plan, the corporation contributed an amount equal to the annual increase in the policy's cash surrender value, while the executive paid the remainder of the annual premium.
Although term insurance is available in the marketplace, virtually all client life insurance needs are best met with whole life insurance.
False. In addition to a number of needs that can and should be met with term insurance, various types of permanent insurance, not just whole life, should be considered in determining how to best meet a client's life insurance needs.
In virtually all cases, employees must bear the full cost of providing workers' compensation benefits.
False. In almost all cases, the full cost of providing workers' compensation benefits is borne by the employers, not the employees.
In calculating the insurance premium, the pure (net) rate is multiplied by the number of units of coverage.
False. In calculating the insurance premium, the gross rate (composed of the pure rate plus a loading for expenses, profit, and contingencies) is multiplied by the number of units of coverage.
In nearly all cases, the beneficiary of a life insurance policy must include the proceeds paid by reason of the insured's death in the beneficiary's gross income for federal income tax purposes.
False. In general, and subject to some exceptions, proceeds paid under a life insurance contract by reason of the insured's death are excludible from gross income for federal income tax purposes.
Exclusive agents generally receive the same commission rate for renewing a property/liability insurance policy as for initially selling the policy, whereas independent agents have traditionally received renewal commissions that are considerably smaller than their initial commissions.
False. Independent agents traditionally receive the same commission rate for renewing a policy as for initially selling the policy, whereas exclusive agents generally receive renewal commissions that are considerably smaller than their initial commissions.
Individuals who itemize deductions for income tax purposes are allowed to deduct all unreimbursed medical expenses, regardless of their amounts.
False. Individuals who itemize deductions for income tax purposes are allowed to deduct most unreimbursed medical expenses to the extent that they exceed 10 percent of their adjusted gross income as of tax year 2013.
Insurance companies are allowed to permanently exclude benefits for preexisting conditions from their Medicare supplement policies.
False. Insurance companies are not allowed to exclude benefits because of preexisting conditions as of January 1, 2014. Under prior law, some policies immediately provided benefits for preexisting conditions or had an exclusion period shorter than 6 months.
It is generally possible to provide disability income protection for up to 100 percent or more of a client' income by purchasing a supplemental policy to coordinate with his or her group long-term policy.
False. Insurance companies that offer disability income policies are very concerned about overinsurance and the accompanying moral hazard and, consequently, limit the amount of benefits relative to the individual's income. As a result, many individuals with coverage through other sources are ineligible for additional disability income protection.
Insurance regulators will reject any insurance rates that are discriminatory.
False. Insurance regulations prohibit unfair discrimination. Many insurance rates are based on fair discrimination. Life insurance rates, for example, vary by age and reflect different mortality rates for people of different ages.
To safeguard against adverse selection, insurers that offer term insurance on an individual basis typically allow it to be renewed, regardless of the insured's age at the time of renewal.
False. Insurers offering term insurance on an individual basis often place a limit on the period during which the insurance can be renewed, in order to protect against adverse selection.
Ethics and compliance really refer to the same thing. There is no difference between the two fields.
False. It is helpful to reiterate a point that is often overlooked when people talk about ethics in business and in the financial services industry in particular—ethics is not compliance. Simply put, fulfilling our legal obligations does not exhaust our ethical obligations.
A charitable gift annuity has the same financial safeguards as an annuity provided by an insurance company.
False. It is very important to evaluate the charity's long-term solvency. If a charity goes bankrupt or faces financial difficulty, the annuitant is merely a general creditor.
If Jack would like to accumulate money for his planned retirement in 20 years, he should purchase an immediate annuity with periodic premiums.
False. Jack should purchase a deferred annuity with periodic premiums. Immediate annuities do not provide for accumulation and cannot be purchased with periodic premiums.
All liability losses involve either bodily injury or property damage.
False. Liability losses can involve bodily injury, property damage, personal injury, contractual liability, wrongful acts, or other offenses.
Nearly all life insurance agents can bind coverage.
False. Life insurance agents do not have authority to bind coverage.
The primary goal of life insurance coverage for young clients is estate liquidity, whereas for older clients it tends to be estate enhancement.
False. Life insurance can provide estate enhancement for young clients as well as estate liquidity/wealth replacement for older clients.
Life insurance policies are considered contracts of indemnity.
False. Life insurance contracts are valued contracts and are not contracts of indemnity.
Life insurance is subject to direct rate regulation under prior approval laws that require that rates be approved before they can be used.
False. Life insurance is not subject to direct rate regulation. Instead, some states supervise the cost of life insurance by limiting the portion of the premium that can be used for expenses rather than claims. Also, life insurance rates are indirectly regulated through the minimum reserve requirements.
Limited-benefit plans typically contain high deductibles.
False. Limited-benefit plans typically pay benefits on a first-dollar basis, but subject to dollar maximums.
Standardized property and liability insurance policies largely eliminate the need for consumers to make choices other than policy amounts.
False. Many additional choices must be made. With property insurance, consumers often need to decide which causes of loss will be covered and to select a deductible. Because most policies contain exclusions and limitations, consumers also need to ensure that their policy or policies cover all significant property that is exposed to loss. Endorsements or additional policies may be needed to provide some necessary coverages. With liability insurance, it is important to recognize that large claims or judgments can consume a client's financial resources and to make sure that all relevant sources of liability loss are recognized and covered, using additional policies or endorsements as necessary.
Medical payments coverage under the PAP applies only to persons other than the named insured.
False. Medical payments under the PAP cover the insureds as well as other people riding in the insured's car. Insureds are covered while occupying a motor vehicle designed for use on public roads or when struck as a pedestrian.
Medicare benefits are partially subject to taxation for beneficiaries above statutory income limits.
False. Medicare benefits are received tax free.
The formulary for a Medicare prescription drug plan must include all drugs that can be legally sold.
False. Medicare prescription drug plans are required to include at least two drugs in most therapeutic classes. However, most plans cover more than the minimum required number of drugs.
Most commonly, CGL coverage is written on a claims-made basis.
False. Most commonly, CGL coverage is written on an occurrence basis.
Most employers provide long-term disability income coverage for their employees.
False. Most employers do not provide long-term disability income insurance.
Most group disability income contracts exclude disabilities that result from pregnancy.
False. Most group disability income contracts cover disabilities that result from pregnancy because it is illegal under federal law for an employer with 15 or more employees to exclude these disabilities. Employers with fewer than 15 employees may still exclude pregnancy disabilities unless the employers are subject to state laws to the contrary.
Most individual disability income policies are conditionally renewable, subject to evidence of insurability.
False. Most individual disability income policies are guaranteed renewable at least to some age, such as 65 or 67.
Group long-term disability income contracts typically require disabled employees who return to work to complete a new waiting period before any benefits can be reinstated if they subsequently decide they are unable to keep working.
False. Most insurers include a rehabilitation provision in their long-term disability income contracts as an incentive to encourage disabled employees to return to active employment as soon as possible. This provision permits employees to enter a trial work period. If the trial work period indicates that the employees are unable to work, the full benefits will be reinstated without the employees having to satisfy a new waiting period.
Most premium taxes insurers pay to the states are used to pay for the cost of insurance regulation.
False. Most premium taxes paid by insurers to the states are used for revenue purposes rather than to pay for the cost of insurance regulation.
Most professional liability policies are written on an occurrence basis.
False. Most professional liability policies are written on a claims-made basis.
Most specified disease insurance policies in the marketplace today cover only cancer.
False. Most specified disease insurance policies cover cancer as well as other diseases.
Most states handle hard-to-insure drivers through joint underwriting associations.
False. Most states handle hard-to-insure drivers through automobile insurance plans.
Although unfair trade practices are illegal in all states, most states now permit rebating and twisting.
False. Most states prohibit rebating and twisting as unfair trade practices.
Because mutuals are owned by their policyowners, they are usually better than stocks from a consumer's standpoint.
False. Neither stocks nor mutuals are inherently superior from a consumer's standpoint. The real issue for the insurance consumer is which specific insurer and coverages to select, not which type of insurer to select.
No-fault benefits in most states are limited to medical expenses.
False. No-fault benefits in most states include rehabilitation expenses, loss of earnings, expenses for essential services, funeral expenses, and survivors' benefits, as well as medical expenses.
Insurance buyers should be careful to avoid buying coverage from a nonadmitted insurer.
False. Nonadmitted insurers serve a legal, valuable, and positive role in the U.S. insurance marketplace. Consumers are permitted to buy property and liability insurance from nonadmitted insurers when they cannot purchase some needed coverage from an admitted insurer. Nonadmitted insurers generally provide insurance for policyowners that present underwriting challenges, have unique risks that are hard to evaluate, or require unusually high limits of insurance.
One of the common uses of life insurance in business is to serve as an alternative to a properly designed buy-sell agreement.
False. One of the common uses of life insurance in business is to serve as a method of funding, not of replacing, a properly designed buy-sell agreement.
All life insurance policy replacements involve twisting and thus are detrimental to the policyowner.
False. Only those life insurance policy replacements involving agent or insurer distortion or misrepresentation of facts constitute twisting. Sometimes a policyowner can substantially improve his or her situation by replacing an existing policy with a new one from either the same or a different company.
Open-perils coverage refers to a policy that contains a very long list of named perils.
False. Open-perils coverage refers to a policy that covers all losses to covered property unless the loss is specifically excluded. Some named-peril policies contain a very long list of named perils.
Although a variety of noninsurance risk transfer methods are available, insurance is the only risk transfer technique that can be used to handle pure risks.
False. Other noninsurance risk transfer methods also can be used to handle pure risks-for example, extended warranties and hold-harmless agreements.
A shortcoming to the Social Security program is that it covers slightly less than 75 percent of working persons.
False. Over 95 percent of working persons are covered under Social Security. Those who do not participate may be covered under other programs.
Part A of Medicare pays for inpatient hospital services for up to 365 days for an uninterrupted stay in a hospital.
False. Part A of Medicare pays for inpatient hospital services for an uninterrupted stay of up to 90 days plus another 60 lifetime reserve days.
People can be held responsible only for their own negligent acts.
False. People can be responsible not only for their own negligent acts but also for those of others. For example, employers can be personally liable for the torts of their employees. In states with vicarious liability laws, the owner of an auto can be liable for the acts of another person driving the car.
Personal umbrella policies commonly cover situations excluded under the required underlying coverages, such as sexual molestation and failure to render professional services.
False. Personal umbrella policies commonly exclude sexual molestation and failure to render professional services.
An insurance contract is of little value to the policyowner unless a claim for coverage is presented.
False. Policyowners realize the immediate benefits of relief from anxiety and freedom from worry about financial losses.
Premium contributions by an employer to group medical and dental coverage for an employee are considered taxable income to the employee.
False. Premium contributions by an employer to group medical and dental coverage for an employee do not create any income tax liability for the employee.
For an insurance business to operate in the long run, premiums must equal losses, expenses, and profits.
False. Premiums plus investment earnings plus other income must equal losses, expenses, and profits.
Coverage for children over the age of 21 under their parents' homeowners policy is discontinued, even if the children continue to reside in their parents' household.
False. Regardless of age, children are covered under their parents' homeowners policy as long as they continue to reside in their parents' household.
Self-insurance is an especially appropriate technique for small businesses and families to use in dealing with risks.
False. Self-insurance is generally appropriate only for large businesses that can act like an insurance company for their own risks.
Personal insurance planning begins with a sound individual insurance program, supplemented by group insurance and any available social insurance.
False. Social insurance provides the foundation of a personal insurance program, followed by employer-sponsored insurance and, finally, individual insurance.
Some BOPs automatically adjust the building coverage limit to allow for seasonal changes in building values.
False. Some BOPs automatically adjust personal property coverage to allow for seasonal changes in inventory values.
All ethical decision-making should be intuitive and spontaneous.
False. Successful ethical decision-making is a skill. As such, it often involves thinking hard to balance multiple considerations. This vision of ethical decision-making differs from the "common sense" view that ethical decision-making is intuitive (without deliberate rational thought) and instantaneous.
The surrender charge in a universal life policy increases as the insured ages.
False. Surrender charges are commonly levied only during the first 10 or 15 years of the contract.
NAIC model legislation regarding long-term care policies has become federal law and applies retroactively to older policies.
False. The NAIC model legislation establishes guidelines that have been adopted by several states (not federally). Furthermore, older policies that are still in existence and were written prior to the adoption of the model legislation or one of the later revisions may be unaffected.
When presenting a life insurance illustration concerning a participating policy, it is important for an agent to assure the client that dividends will always be paid in the future.
False. The NAIC model regulation prohibits insurers and their agents from stating or implying that the payment or amount of nonguaranteed elements is guaranteed, and a participating policy's dividends are not guaranteed.
The primary responsibility of a personal producing general agent (PPGA) is to build an agency force for the company.
False. The PPGA's main responsibility is his or her personal production.
Maternity-related expenses are usually excluded from major medical plans.
False. The Pregnancy Discrimination Act requires that benefit plans of employers with 15 or more employees treat pregnancy, childbirth, and related conditions the same as other illnesses.
If Bill dies 20 years after purchasing his whole life policy and the insurer discovers that he had understated his age in the application, the company will have to pay the face amount to the beneficiary because the 2-year contestability period is over.
False. The company would lower the death benefit to the amount that the premium paid would have purchased at the correct age. The incontestable clause does not apply to a misstatement of age.
"Ethical fading" refers to the intensification of our moral intentions.
False. The confidence of the American public in the integrity and professionalism of the financial services industry is under threat. This level of public distrust is not only disheartening, it also has real consequences. One of these consequences is an increased amount of government regulation as frustrated consumers and regulators look to try and enforce a higher standard of conduct. Increased compliance obligations, while irritating to ethical practitioners and their clients, can have more serious consequences such as the stripping of the ethical motivation for acting well. This is a process called "ethical fading."
The dominant factor in the selection of an agent is friendship.
False. The criteria for evaluating an agent include knowledge and ability, willingness, integrity and character, and representation.
If Sarah named her husband as primary beneficiary and her children as contingent beneficiaries of her life insurance policy, and her husband predeceases her, the death proceeds from Sarah's policy will be paid to her husband's estate unless she has changed the beneficiary designation.
False. The death proceeds from Sarah's policy will be paid to her children as contingent beneficiaries. Upon her husband's death, the right to receive the death proceeds from Sarah's policy transfers to the children as contingent beneficiaries.
The first step in the risk management process is risk measurement.
False. The first step is risk identification.
The identity fraud expense coverage endorsement would reimburse a victim of identity theft for money stolen from his bank account.
False. The identity fraud expense coverage endorsement provides up to $15,000 in coverage for expenses that may be incurred as a result of identity thief, but it does not reimburse an insured for the theft itself.
The inside buildup in a permanent life insurance policy is subject to taxation if it is left inside the policy.
False. The inside buildup in a permanent life insurance policy is not subject to taxation as long as it is left inside the policy.
Individual disability income policies are prohibited from having an incontestability provision because of the potential for fraud.
False. The laws of all states require that disability income policies contain incontestability provisions.
The limits for homeowners Coverages B, C, and D are part of the Coverage A limit.
False. The limits for homeowners Coverages B, C, and D are additional amounts of insurance and do not affect the amount of coverage (Coverage A) on the dwelling.
Short-term disability income contracts typically limit coverage to occupational disabilities.
False. The majority of short-term disability contracts limit coverage to nonoccupational disabilities because employees have workers' compensation benefits for occupational disabilities.
The misrepresentation or concealment of a material fact by an applicant for insurance will void a contract that the insurer has issued to the applicant.
False. The misrepresentation or concealment of a material fact by an applicant for insurance will not void the contract but will make it voidable by the insurer.
The best way to adjust benefits upward for inflation before the insured is disabled is to purchase new policies to supplement the in-force policies incrementally as the insured's income increases.
False. The most attractive way to adjust benefits upward for inflation while the insured is not disabled is to use riders that automatically increase the base benefit amount on a formula basis.
The most common method of dealing with risks that present an increasing hazard is to assess a flat extra premium.
False. The most common method of dealing with risks that present an increasing hazard is to use extra percentage tables. A flat extra premium is normally used when the hazard is thought to be constant or decreasing.
Indexed universal life insurance incorporates the premium flexibility features of the universal life policy with the policyowner-directed investment aspects of variable life products.
False. The performance of indexed universal life policies is based on an external index, not on investments selected by the policyowner.
The purpose of a Social Security offset rider to an individual disability income policy is to provide benefits during the waiting period for Social Security disability income benefits.
False. The purpose of a Social Security offset rider is to provide additional benefits to a disabled person who does not qualify for Social Security disability income benefits.
The purpose of underwriting is to select only those insureds who are expected to have no losses.
False. The purpose of underwriting is to select insureds who, on average, will produce actual loss experience comparable to the expected loss experience incorporated into the premium rates.
A weakness of using the risk management process is that only insurance products are considered for treating risks.
False. The risk management process considers all the alternatives for treating risks.
The term group health plan as used for COBRA purposes is broad enough to include long-term care plans.
False. The term group health plan as used for COBRA purposes is broad enough to include dental plans and vision care plans, but not long-term care plans. Long-term care coverage is not subject to the COBRA rules.
To facilitate access to capital markets and diversification of activities, there is currently a trend for stock companies to convert to mutual companies.
False. The trend is for mutual companies to demutualize.
Federal privacy laws regarding viaticals protect insureds from being identified and their medical information from being provided to third-party investors.
False. There are no federal privacy laws regarding viatical agreements.
There is a reduction in Social Security benefits under the earnings test for a 72-year-old person who goes back to work and earns $40,000 annually.
False. There is no earnings test reduction for a worker older than his or her full retirement age.
An example of a condition precedent in an insurance contract is that the insured is required to cooperate with the insurer in defending a liability claim.
False. This is an example of a condition subsequent.
The person who has the power to exercise the rights in a life insurance policy is called the insured.
False. This person is the policyowner.
Title insurance provides protection against all title defects, regardless of when they occur or are discovered.
False. Title insurance provides protection only against unknown title defects that have occurred prior to the effective date of the policy but were discovered after the effective date.
Torts can result from negligence or contractual obligations.
False. Torts can result from negligence, intentional acts or omissions, and strict or absolute liability.
Under HIPAA, a "chronically ill person" must be unable to perform at least four activities of daily living (ADLs).
False. Under HIPAA, a chronically ill person must be unable to perform only at least two activities of daily living.
Under an initial deductible, the insurer will pay for all losses up to a specified deductible amount.
False. Under an initial deductible, the insurer will pay for losses only after they exceed a specified deductible amount. The insured must absorb all losses up to that specified amount.
Under most no-fault laws, the right to sue the negligent party, even for pain and suffering, has been eliminated.
False. Under most no-fault laws, the right to sue the negligent party exists once a dollar or verbal threshold has been met. No state has adopted a pure no-fault law.
With universal life insurance, death benefits are always level unless the cash value gets too close to the death benefit to comply with federal income tax law.
False. Under the level death benefit design, death benefits are level unless the cash value gets too close to the death benefit to comply with the federal income tax law, in which case the death benefit will start increasing. However, under the increasing death benefit design, the death benefit will increase or decrease with the policy's cash value.
Under facultative reinsurance, the insurer agrees in advance to transfer some types of risks, and the reinsurer agrees to accept those risks.
False. Under treaty reinsurance, the insurer agrees in advance to transfer some types of risks, and the reinsurer agrees to accept those risks. With facultative reinsurance, the insurer is under no obligation to offer the risk to the reinsurer, and the reinsurer is under no obligation to accept.
Medicare beneficiaries may switch prescription drug plans at any time as long as they give 60 days notice.
False. Unless a beneficiary is eligible for a special enrollment period, he or she may switch plans during an election period that runs from November 15 to December 31 of each year. The new plan takes effect on the following January 1.
Variable life insurance policies may be sold without an accompanying prospectus.
False. Variable life insurance can be sold only with an accompanying prospectus.
Viatication, or the selling of a life insurance policy to a viatical settlement provider, is a securities transaction subject to SEC regulation.
False. Viaticals are not deemed securities and are not subject to SEC regulation.
For a client in poor health, the underwriter might offer an impaired risk annuity that requires a higher premium for the same benefits.
False. When a client's life expectancy is reduced, the insurer is most likely to provide annuity payments for a shorter period of time. Consequently, the premium to provide a given level of benefits is lower than the premium charged to an annuitant with a normal life expectancy.
When using the convertibility option with the attained age method, the policyowner has the option of selecting either the insurer's current contract or the contract that was in use when the original policy was issued.
False. When the attained age method is used, the insurer uses the contract currently in use. The contract originally in use is available only when the original-age (retroactive) method is used.
Professional responsibilities or "role-specific" responsibilities apply to everyone, in virtue of their nature as human beings.
False. While many of our ethical obligations are equally intuitive, this is not always the case. In these situations, it is helpful to consider both our general moral responsibilities and our professional or "role-specific" responsibilities. While general moral responsibilities apply to human persons simply in virtue of being human, professional responsibilities are voluntary in the sense that we willingly assume them when we undertake the mantle of professionalism.
With the financial needs analysis approach, the amount of additional life insurance needed is determined by subtracting the resources already available from the resources needed by the surviving dependents if the client should die today, assuming all future income payments are composed solely of investment earnings on a capital sum.
False. With the financial needs analysis approach, the amount of additional life insurance needed is determined by subtracting the resources already available from the resources needed by the survivor's dependents if the client should die today, assuming that future income payments can be composed of a combination of investment earnings and liquidation of the capital sum.
Workers' compensation benefits are included in a recipient's gross income for income tax purposes.
False. Workers' compensation benefits are received free of income taxation.
Yearly renewable term insurance pays the policy face value if the insured is alive at the end of the protection period.
False. Yearly renewable term insurance pays benefits only if the insured dies during the protection period.
Our intentions are irrelevant to the moral quality of our actions.
False. Your intention is the goal that you hope to accomplish by performing an action. Intentions are relevant for two reasons: First, it impacts our assessment of the person who performed the action, and second, it impacts how the action will be performed.
If the insured dies 2 weeks after the premium was due but not paid, the life insurance company must pay the beneficiary only an amount equal to the premiums paid in the past plus interest.
If the insured dies 2 weeks after the premium was due but not paid, the life insurance company must pay the beneficiary only an amount equal to the premiums paid in the past plus interest.
Although a directors and officers (D&O) liability policy is purchased by a corporation, the insureds are generally the officers and directors and not the corporation.
True
Although reciprocals are usually small, a few exchanges that write auto insurance have grown to substantial size.
True
A 25-year-old woman who lives with her parents is covered under her parents' PAP while she is driving the family car or a friend's car.
True
A PPO often has different deductibles and coinsurance for network and nonnetwork charges.
True
A broker represents the policyowner, whereas an agent is a legal representative of the insurance company.
True
A businessowners policy (BOP) is designed for small- to medium-sized businesses in the sense that it can meet most of the needs of an average policyowner.
True
A client can purchase crime insurance to cover the client's business against losses due to employee theft as well as burglary and robbery.
True
A client driving to Mexico should be advised to purchase liability coverage from a Mexican insurer.
True
A family will usually reach the maximum benefit under Social Security if three or more family members are eligible for benefits.
True
A gift involves a completed transfer and acceptance of property for less than full and adequate consideration.
True
A homeowners policy provides coverage for additional living expenses incurred while a family lives elsewhere during repairs for a covered property loss.
True
A joint-and-last-survivor annuity continues to pay benefits as long as any of the annuitants are alive.
True
A point-of-service plan allows members to be reimbursed for treatment received outside the HMO network.
True
A publicity test shows whether you believe that your action is in alignment with the manner in which you represent yourself and your values to other people.
True
A qualified beneficiary can obtain COBRA coverage after a qualifying event without having to provide evidence of insurability.
True
A reciprocal is an unincorporated association, and each insured is also an insurer.
True
A successful behavioral health program should permit patient access on a 24-hour basis.
True
A surviving spouse who is the beneficiary of an HSA can use the account balance for his or her own medical expenses.
True
A survivorship policy is payable upon the death of the last of two or more lives insured under the single contract.
True
A typical property insurance policy requires that whenever a property loss occurs, the insured must give prompt notice to the insurer.
True
AARP and many professional societies have programs through which their members can obtain medical expense coverage.
True
After John's policy has been in force for 2 years during John's lifetime, the insurer can no longer contest the policy based on a false answer in the application about John's health.
True
All beneficiaries of a life insurance policy are identified in the policy declarations page.
True
Many major medical plans with a calendar-year deductible also have a carryover provision that allows any expenses applied to the deductible and incurred during the last 3 months of the year also to be applied to the deductible for the following year.
True
Medical expense insurance is the most significant type of employee benefit in terms of both the number of persons covered and the dollar outlay.
True
Moral perception is the ability to correctly recognize (and assign the appropriate weight) to the morally salient facts of a situation.
True
More than half of the states have established some type of high-risk pool, whereby anyone turned down for medical expense coverage in the normal marketplace can obtain coverage through the pool.
True
Most flood insurance is written through the NFIP. (National Flood Insurance Program.)
True
Most group life coverage is provided without individual evidence of insurability.
True
Most group medical expense plans contain a coordination-of-benefits (COB) provision under which coverage as an employee is primary to coverage as a dependent.
True
Most individual disability income policies include a waiver-of-premium provision.
True
Most insurance companies offer a discount if both spouses purchase long-term care policies from the same company.
True
Most insurance contracts are contracts of adhesion.
True
Most property and liability policies contain a provision that specifies how an insurer's obligation is affected by the existence of other insurance that covers a loss.
True
Most sick-leave plans are coordinated with social insurance programs.
True
Most states require long-term care policies to offer some type of inflation protection that the applicant can purchase.
True
NAIC model legislation regarding long-term care policies requires that a shopper's guide must be delivered to all prospective applicants.
True
Negligence is the failure to exercise the proper degree of care required by the circumstances.
True
One of the benefits that may be available under a comprehensive long-term care insurance contract is adult day care.
True
Part A of Medicare provides benefits for home health care.
True
Part A, the hospital portion of Medicare, is available to disabled persons under age 65 who have been eligible to receive Social Security benefits for two years because of their disability.
True
Part B of Medicare pays for prostate cancer screening and certain other preventive care.
True
Property and liability insurance premiums paid for business coverage are generally deductible as a business expense.
True
Property losses can occur to either real or personal property.
True
Residual disability benefits focus on how much income reduction has been sustained as a result of the disability, rather than on the physical limitations of the disability itself.
True
Risk management involves, among other things, a careful evaluation of the suitability and cost of various alternative methods to treat pure risks, and the choice of the method or combination of methods that provides the most desirable result.
True
Risk management is a systematic process for dealing with risks, usually pure risks.
True
Sick-leave plans generally replace all lost income for a limited period of time, starting on the first day of disability.
True
Social Security and Medicare are based on a system of funding that the Social Security Administration refers to as partial advance funding.
True
Some exclusions are found in insurance policies because the risks are typically covered by other insurance.
True
Stakeholders are individuals or groups of individuals who are impacted by the result of a decision or who can impact the decision making process.
True
Stock and mutual insurers may both pay dividends, stock companies to their stockholders and mutual companies to their policyowners
True
Surety bonds are three-party contracts in which a principal who defaults on a bond is liable to the surety to the extent of any expenditure the surety incurs.
True
Term insurance tends to be suitable when the need for protection is either purely temporary or when it is permanent but the insured temporarily cannot afford the premiums for permanent insurance.
True
The CGL Coverage Form has two aggregate limits that apply for an annual policy period.
True
The HIPAA group-to-individual portability rules apply in a state only if the state does not have its own plan.
True
The Medicaid program in most states will provide nursing home care to low-income individuals.
True
The basic fallacy of the traditional net cost method for measuring the cost of life insurance is that it ignores the time value of money.
True
The definition of disability under Social Security is very rigid.
True
The financial needs analysis approach considers both lump-sum needs at death and ongoing income needs.
True
The general purpose of insurance regulation is to protect the public against insolvency and unfair treatment by insurers.
True
The insurance commissioner has the power to, among other things, enforce the laws passed by the legislature and interpreted by the courts, license insurers and agents, and investigate to determine whether insurers and agents are meeting the requirements of the statutes.
True
The insurance company has the right to refuse conversion of group medical expense coverage for anyone who is covered under Medicare.
True
The insurance company is obligated to pay an uninsured motorists claim only when the owner or operator of the uninsured vehicle is legally responsible for the insured's damages.
True
The key difference between a settlement on an actual cash value basis and a replacement cost basis is that depreciation is considered in calculating the actual cash value of the loss.
True
The law of large numbers states that as the number of independent events increases, there is a greater chance that the actual results will be close to the expected results.
True
The liability coverage contained in an unendorsed homeowners policy provides protection against suits for bodily injury and property damage.
True
The liability section is identical for all ISO homeowners forms.
True
The most common type of commercial auto insurance is the Business Auto Coverage Form, which is similar to the Personal Auto Policy with respect to the coverages that can be purchased.
True
The person whose life governs the duration of payments in an annuity is called the annuitant.
True
The premium for an individual disability income policy with a 2-year benefit period can be as low as 40 to 50 percent of the premium required to extend the benefits to age 65.
True
The primary insurance amount is the amount of the Social Security benefit a worker will receive if he or she retires at full retirement age or becomes disabled.
True
The purchaser of an individual major medical policy has to select the annual deductible and lifetime maximum limit he or she wants in the policy.
True
The purpose of the claims settlement process is to determine the insurer's liability for a given loss and to reach agreement with respect to the amount of loss or damage payable under the insurance contract.
True
The requirement that the insured must cooperate with the insurer in legal proceedings against the insured by a third-party claimant is an example of a condition subsequent.
True
The surrender cost index indicates the cost of surrendering the policy for the cash value at some future point in time.
True
The typical dental plan limits benefits to the least expensive type of accepted dental treatment for a given dental condition.
True
The underwriting process for individual disability income insurance is much more complex than for individual life insurance.
True
The use of dividends to purchase paid-up additions may be advantageous because the purchase is made at rates that do not contain a loading for expenses.
True
Two common package policies for boats are the boatowners policy for smaller boats and the yacht policy for larger boats.
True
Under a contract of indemnity, the insurer pays an amount that reflects the amount of the loss up to the policy limit, subject to other policy provisions.
True
Under the loss ratio method of rate making, the actual loss ratio experienced is compared with the expected (or desired) loss ratio to determine the needed change in the existing insurance rate.
True
Under the principle of subrogation, if the insurer indemnifies the insured for a loss, the insurer obtains whatever rights the insured had against responsible third parties
True
Unemployment insurance is intended to provide short-term benefits (typically 26 weeks) to workers who lose their jobs.
True
Using a simple multiple of earnings method to determine the amount of life insurance needed ignores key information about how much a client has already accumulated.
True
Variations exist among long-term care insurance policies as to how home health care services are counted toward satisfaction of the elimination period.
True
While loss prevention involves reducing the probability of frequency of loss, loss reduction involves lessening its severity.
True
With a level-premium whole life policy, premiums in excess of the policy's share of death claims in the early years of the contract are accumulated with interest in a reserve.
True
With a whole life policy, the policyowner receives a combination of increasing cash values and decreasing (pure insurance) protection.
True
With renewable term insurance, the policyowner/insured would be permitted to renew the policy if he or she had contracted a terminal disease prior to a renewal date.
True
With universal life insurance, the policyowner can skip premium payments (after the first year) and the policy will stay in force as long as there is enough money in the policy's cash value account to cover current mortality and expense charges and any applicable surrender charges.
True
Workers' compensation laws often have a short waiting period for disability income benefits.
True
Yearly renewable term insurance premiums increase each year because of increases in the death rate at increasing ages.
True
An individual can take distributions from an HSA at any time.
True. However, there may be adverse tax consequences if distributions are taken for purposes other than paying medical expenses of the account holder or the account holder's spouse or tax dependents.
