HS 311
William is covered under his employer's major medical expense plan. The plan has a calendar-year deductible of $1,000, a 75 percent coinsurance provision that applies to the next $8,000 of covered expenses, and full coverage for any remaining covered expenses. If William incurs covered medical expenses of $15,000 during the year, how much will be paid by his employer's plan?
$12,000
Lynn owns the commercial building that houses her business. The property insurance policy covering the building has an 80 percent coinsurance clause. If the replacement cost of the building is $500,000 and Lynn has it insured for $300,000 on a replacement cost basis, how much would the insurance company pay (ignoring any deductible) if the building were to suffer fire damage with a replacement cost of $100,000?
$75,000 if coverage is less than 80% of the cost of replacement use the following formula to calculate the amount recoverable: (insurance carried/insurance required)*Loss
The standard amount of insurance for loss of use (Coverage D) under an unendorsed HO-3 policy is what percentage of the amount of insurance for the dwelling (Coverage A)?
30 percent
Robert sued Heather for injuries received in an auto accident. Based on the facts presented, the jury determined that Robert was 20 percent at fault and Heather was 80 percent at fault. Under a comparative negligence law, the jury award to Robert would be
80 percent of his actual damages
All the following statements concerning joint-life insurance are correct EXCEPT (A)A first-to-die policy pays beneficiaries upon the death of any insured. (B)A second-to-die policy must be a term insurance contract. (C)A survivorship policy written on two individuals pays beneficiaries upon the death of the last insured. (D)Joint-life policies are sometimes used to fund business buy-sell agreements.
A second-to-die policy must be a term insurance contract. (Joint-life policies are usually some form of cash value insurance.)
Compared with a lump-sum settlement, the advantages of a structured settlement for the injured party include all the following EXCEPT (A)The settlement can never be prematurely exhausted because the income payments are guaranteed for life or for a fixed period. (B)The risk that a settlement will be dissipated through mismanagement is significantly reduced when converted into periodic payments. (C)A periodic income not only provides a degree of financial security but also allows benefits to be better matched with future needs. (D)A settlement paid in a lump sum is taxable income, whereas a structured settlement paid as periodic income is tax free.
A settlement paid in a lump sum is taxable income, whereas a structured settlement paid as periodic income is tax free. (Neither a lump-sum settlement nor a structured settlement for bodily injury damages is taxable income.)
Many long-term care insurance policies provide the services of a care coordinator. Functions of such a person may include which of the following? I. assessing an insured's condition II. periodically evaluating ongoing plans of care
Both I and II
Phil, aged 62, owns an individual flexible premium deferred annuity that currently has an accumulated value of $460,000. If Phil has paid $240,000 in premiums over the years, which of the following statements concerning tax treatment of benefits received from the annuity is (are) correct? I. If Phil currently withdraws $150,000 from the annuity while it is still in its accumulation period to begin construction of a lakeside cabin for his retirement years, the $150,000 is treated as taxable income. II. If Phil begins receiving monthly payments for life from the annuity, a portion of each monthly income payment will be treated as taxable income.
Both I and II
Which of the following statements concerning a properly designed buy-sell agreement is (are) correct? I. It ensures that a businessowner's estate can sell the business for a reasonable price. II. It should specify how the purchase price will be established.
Both I and II
Which of the following statements concerning an annuitant's options at the maturity date of a deferred annuity is (are) correct? I. The annuitant can elect to have the accumulation applied under any annuity form the company offers. II. The annuitant can usually elect to take a lump-sum payment in lieu of an annuity.
Both I and II
Which of the following statements concerning group insurance is (are) correct? I. The group insurance contract provides coverage to a number of persons. II. Individual members of the group are usually not required to show any evidence of insurability when initially eligible for coverage.
Both I and II
Which of the following statements concerning stakeholder theory is (are) correct? I. Stakeholder theory was designed as a theory of management decision-making. II. Stakeholder theory is a helpful way to consider decision-making for financial services professionals.
Both I and II
Which of the following statements concerning the appropriate use of life insurance in estate planning is (are) correct? I. Life insurance may be used to provide a larger estate for the insured's heirs. II. Life insurance may be used to pay death taxes.
Both I and II
Which of the following statements concerning the definitions of terms used in an insurance policy is (are) correct? I. Words or phrases defined in the policy typically appear in boldface type or quotation marks when they are used elsewhere in the policy. II. Words not defined in the policy are given their ordinary or normal meaning.
Both I and II
Which of the following statements defining ethics is (are) correct? I. Ethics is both a field of study and a skill. II. Ethics is a branch of philosophy that investigates, among other things, how we should behave.
Both I and II
Which of the following types of managed care plans permit those covered by the plan to elect, at the time medical treatment is needed, whether to receive treatment from practitioners associated with the plan or those outside the plan's network? I. preferred-provider organizations (PPOs) II. point-of-service (POS) plans
Both I and II
Which of the following statements concerning the federal income tax treatment of insured group medical expense plans is correct? (A)All employee contributions under a contributory plan are tax deductible to the employee as a medical expense. (B)Benefits are taxable to an employee to the extent that the employer paid the cost of coverage. (C)Contributions by the employer for an employee's coverage create an income tax liability for the employee. (D)Contributions by the employer for an employee's coverage are generally tax deductible to the employer.
Contributions by the employer for an employee's coverage are generally tax deductible to the employer.
All the following statements concerning directors and officers (D&O) liability insurance are correct EXCEPT (A)An insuring agreement in the policy covers directors and officers for their personal liability as directors and officers. (B)Coverage applies to claims for bodily injury and property damage. (C)An insuring agreement in the policy reimburses the corporation for any sum it is required or permitted to pay to indemnify directors and officers. (D)D&O insurance is purchased by the corporation but its officers and directors are the insureds.
Coverage applies to claims for bodily injury and property damage. (D&O policies cover liability arising out of wrongful acts and exclude coverage for bodily injury and property damage, which should be covered under the firm's other policies.)
Which of the following statements concerning ethical decision-making is correct? (A)Ethics and compliance are synonymous. (B)Compliance is concerned with how we should behave. (C)Ethics is concerned with how we should behave. (D)All of the above
Ethics is concerned with how we should behave.
Which of the following homeowners forms is designed for the owners of condominium units? (A)HO-2 (B)HO-4 (C)HO-6 (D)HO-8
HO-6
As of this year, Brad, aged 35, has 36 credits of covered employment under the Social Security program. These credits were all earned in the last 40 calendar quarters. What is Brad's insured status under the program?
He is currently, fully, and disability insured.
Astronomical Insurance Company accidentally issued a life insurance policy that had not been approved in Texas to a Texas man who wished to insure his life. Which of the following statements concerning this policy is (are) correct? I. The policy is voidable at the option of the policyowner. II. The insured's beneficiary will be unable to collect benefits if the mistake is discovered after the insured's death.
I only
Methods of risk financing include which of the following? I. risk retention II. loss prevention
I only
The Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act, addressed some issues involving the regulation of banks and insurance. Which of the following statements concerning this act is (are) correct? I. State insurance regulators have primary regulatory authority for insurance activities of banks. II. State insurance regulators have primary regulatory authority over the banking activities of banks that sell insurance.
I only
Which of the following statements concerning financing the Social Security and Medicare programs is (are) correct? I. The tax rate for self-employed persons is equal to the combined tax rate for employees and employers. II. The wage base on which taxes are paid increases quarterly based on changes in the rate of inflation.
I only
Which of the following statements concerning premiums for individual medical expense insurance policies is (are) correct? I. The total premiums for a year will be higher if paid in installments rather than a single annual premium. II. If a premium is not paid within the grace period, the policy will lapse as of the end of the grace period.
I only
Which of the following statements concerning the damages involved in liability claims is (are) correct? I. Compensatory damages are designed to financially compensate a claimant who has suffered a loss. II. Punitive damages are designed to indemnify a claimant for pain and suffering.
I only
Which of the following statements concerning Medicare Advantage plans is (are) correct? I. They require the insured to have a high-deductible medical expense policy. II. They may provide a higher level of benefits than the original Medicare program.
II only
Which of the following statements concerning NAIC model legislation for long-term care insurance that pertains to marketing is (are) correct? I. The policy must allow policyowners to have a 90-day free look. II. Insurers must establish procedures to prohibit excessive insurance from being sold.
II only
Which of the following statements concerning health savings accounts (HSAs) is (are) correct? I. The current year's contribution for a participant is reduced by a portion of any unused amounts in an HSA that are attributable to prior years' contributions. II. The high-deductible health plans used with HSAs are permitted to waive the deductible requirement for preventive care.
II only
Which of the following statements concerning insurable interests is (are) correct? I. A property insurer often pays claims when an insured party suffers a loss to covered property in which that party lacks an insurable interest. II. A bank or other mortgage holder that finances the purchase of real estate has an insurable interest in the mortgaged property.
II only
Which of the following statements concerning state high-risk pools for individual medical expense coverage is (are) correct? I. As a result of state subsidies, premiums tend to be much lower than in the regular marketplace. II. ACA prohibits ratings based on the health status of individuals as well as preexisting exclusions.
II only
Which of the following statements concerning the capital needs analysis approach to determining how much life insurance the family head should carry is (are) correct? I. The amount of capital needed to meet an income objective is found by multiplying the income objective by the after-tax investment return rate. II. The lower the after-tax investment return rate, the higher the capital fund needed to produce the income objective.
II only
Which of the following statements concerning the federal income tax treatment of premiums paid for property and liability insurance is (are) correct? I. Premiums for policies on nonbusiness property are deductible as casualty expenses by individual taxpayers. II. Premiums for policies on business property are deductible business expenses for a corporation.
II only
Which of the following statements concerning the independent agency system in property and liability insurance is (are) correct? I. Commission rates paid to an agent on the sale of new business tend to be less than those paid for renewals. II. The agent owns the business and is able to place it with any one of several companies at renewal time.
II only
The cash value in a life insurance policy has all the following characteristics EXCEPT (A)It makes permanent death protection possible at affordable rates. (B)It serves as a major source of an insurer's investable funds. (C)It can serve as collateral when the policyowner applies for credit. (D)It increases the insurer's net amount at risk.
It increases the insurer's net amount at risk. (The cash value decreases the insurer's net amount at risk.)
All the following statements regarding surety bonds are correct EXCEPT (A)Judicial bonds are required under statutory law. (B)Fiduciary bonds are often required of persons who act as administrators, trustees, and guardians. (C)Litigation bonds require a person or organization seeking a court remedy to protect other parties from damages if the party seeking the remedy does not prevail. (D)Bail bonds guarantee that a bonded person will appear in court at the appointed time.
Judicial bonds are required under statutory law. (Judicial bonds are required by courts.)
All the following statements concerning sources of financing for long-term care are correct EXCEPT (A)Medicaid is available to anyone aged 65 or older, regardless of financial resources. (B)A continuing care retirement community should be entered in advance of the need for long-term care. (C)Home equity may be accessed through a loan or a reverse mortgage. (D)The support of relatives may diminish because of their physical condition and financial needs.
Medicaid is available to anyone aged 65 or older, regardless of financial resources. (Medicaid provides benefits, which usually include nursing home care and home health care, to the "medically needy," and a person is not eligible unless he or she is either poor or has a low income and has exhausted most other assets.)
Which of the following statements concerning prescription drug plans is correct? (A)Nonprescription drugs are typically covered as long as they are ordered by a physician on a prescription form. (B)Benefits are usually provided for the administration of drugs that cannot be self-administered. (C)Most plans have a copayment for each prescription. (D)A reimbursement approach is usually used to provide benefits.
Most plans have a copayment for each prescription.
Which of the following statements concerning insurance company investments is (are) correct? I. The aggregate amount invested by property-liability insurers is much larger than the aggregate amount invested by life insurers. II. Liquidity is a major consideration for the investment of funds by most life insurers.
Neither I nor II
Which of the following statements concerning managed care provisions in traditional medical expense plans is (are) correct? I. Mandatory second surgical opinions typically apply to any surgical procedure. II. Home health care benefits are typically provided indefinitely as long as theyare ordered by a physician.
Neither I nor II
Which of the following statements concerning partial-disability benefits is (are) correct? I. They tend to discourage persons returning to work before total recovery from a disability. II. They are usually payable prior to the period for which an insured qualifies for total-disability benefits.
Neither I nor II
Which of the following statements concerning reinsurance agreements is (are) correct? I. Treaty reinsurance enables an insurer that is underwriting a policy to decide whether that specific policy will be reinsured. II. With facultative reinsurance, some types of exposures are automatically reinsured.
Neither I nor II
Which of the following statements concerning the federal income tax treatment of tax-qualified long-term care insurance policies is (are) correct? I. The first $100 of benefits received each day is subject to income taxation. II. Premiums may be deducted in full as long as they are less than 7.5 percent of a taxpayer's adjusted gross income.
Neither I nor II
Which of the following statements concerning the findings of behavioral psychologists on the subject of risk tolerance is (are) correct? I. Most people are more risk tolerant than they are risk averse. II. A person who is highly risk tolerant in physical or social activities is also highly risk tolerant in financial matters.
Neither I nor II
Which of the following statements concerning the legal requirement of offer and acceptance in a life insurance contract is (are) correct? I. The offer can be made in the form of an oral request by the prospect to the agent. II. Acceptance typically occurs when the agent receives the offer and binds the coverage.
Neither I nor II
Which of the following statements concerning the operation of a variable annuity is (are) correct? I. During the accumulation period, it is to the annuitant's advantage for stock prices to be relatively high. II. II. During the liquidation period, it is to the annuitant's advantage for stock prices to be relatively low.
Neither I nor II
An HO-3 Special Form homeowners policy provides coverage that is broader in some respects than the coverage of an HO-2 Broad Form. All the following statements concerning the HO-3 are correct EXCEPT (A)The dwelling building is covered against loss by more perils in an HO-3 than in an HO-2. (B)Other structures are covered against loss by more perils in an HO-3 than in an HO-2. (C)The premium is higher for an HO-3 than the premium for comparable coverage in an HO-2. (D)Personal property is covered on a replacement cost basis in an HO-3, but it is covered for actual cash value in an HO-2.
Personal property is covered on a replacement cost basis in an HO-3, but it is covered for actual cash value in an HO-2. (Personal property is covered for actual cash value in all homeowners policies. The personal property replacement loss settlement endorsement can be used to add replacement cost coverage on personal property.)
All the following statements concerning individual disability income insurance policies are correct EXCEPT (A)Many policies contain a presumptive-disability provision for certain types of losses. (B)Rehabilitation benefits may be provided over and above any periodic income benefits. (C)Premiums generally increase at each annual renewal as an insured ages. (D)Incontestability provisions are required by all states.
Premiums generally increase at each annual renewal as an insured ages. (Premiums for disability income policies are based on the policyowner's age at the time of policy issuance and remain level for the duration of the coverage.)
All the following statements concerning monthly Social Security benefits for family members of a deceased or retired worker are correct EXCEPT (A)The 15-year-old child of a deceased worker is eligible to receive 75 percent of the worker's PIA (primary insurance amount). (B)The 15-year-old child of a retired worker is eligible to receive 50 percent of the worker's PIA. (C)The 65-year-old spouse of a deceased worker is eligible to receive 75 percent of the worker's PIA. (D)The 65-year-old spouse of a retired worker is eligible to receive 50 percent of the worker's PIA.
The 65-year-old spouse of a deceased worker is eligible to receive 75 percent of the worker's PIA. (The surviving spouse of a deceased worker is eligible to receive 100 percent of the worker's PIA at full retirement age.)
Susan has a personal auto policy (PAP) with a liability limit of $500,000. She also has a personal umbrella policy with a limit of $1 million and a self-insured retention (SIR) of $1,000. How much will each policy pay if an injured person obtains a judgment of $800,000 against Susan as a result of an auto accident?
The PAP will pay $500,000, and the umbrella policy will pay $300,000.
When a life insurance agent submits an application for a life insurance policy that replaces a client's existing policy, all the following must be done EXCEPT (A)The agent must accept a reduced first-year commission to remove the financial incentive for twisting. (B)The agent must include a statement with the application noting that the policy is a replacement. (C)The replacing insurer must give the applicant at least a 20-day free look at the new policy. (D)The replacing insurer must notify the other insurer of the proposed replacement.
The agent must accept a reduced first-year commission to remove the financial incentive for twisting. (Although high first-year commissions on new policies provide a financial incentive for twisting, there is no requirement that a reduced commission be accepted on a replacement policy.)
In order for a risk to be considered insurable, it must substantially meet all the following requirements EXCEPT (A)Losses must be accidental, rather than intentional, from the standpoint of insureds. (B)The insurer should be able to obtain reasonable projections of future losses. (C)The determination and measurement of losses should be clear and definite. (D)The amount of potential losses should be relatively unimportant to insureds.
The amount of potential losses should be relatively unimportant to insureds. (Because of the element of expense in carrying on the business of insurance, premiums include a charge to provide for this cost. In the case of risks that are of no great importance to insureds, the cost of handling the business would make the rate prohibitive. To make a risk insurable, the amount of future loss payments must be of such importance as to make them, rather than the insurer's expenses, the principal component in the premium charged.)
Which of the following statements concerning the elimination period in a long-term care insurance policy is correct? (A)Most comprehensive policies have separate elimination periods for facility care and home health care. (B)A tax-qualified policy must have an elimination period of at least 90 days. (C)The effect of the elimination period is to reduce a policy's maximum benefit period. (D)The applicant typically selects the length of the elimination period from three to five available options.
The applicant typically selects the length of the elimination period from three to five available options.
All of the following are components of the decision making process of the financial services professional EXCEPT (A)The client (B)The organization (C)The community (D)The beneficiaries of the plan, excluding the client's family
The beneficiaries of the plan, excluding the client's family (Beneficiaries, including the client's family and dependents, are included in the decision-making process of the financial services professional.)
Which of the following statements describes factors that should be considered in the argument whether it is better to buy term life insurance or to buy permanent insurance and invest the premium difference? (A)The cash value of a life insurance policy can readily be liquidated. (B)People are less likely to pay a life insurance premium than they are to make a voluntary investment. (C)The life insurance industry has a questionable solvency record. (D)Increases in life insurance cash values are subject to federal income taxes as they accrue.
The cash value of a life insurance policy can readily be liquidated.
Which of the following statements concerning the beneficiary provisions in a life insurance policy is correct? (A)Only one person may be named as a primary beneficiary, but several may be named as contingent beneficiaries. (B)The primary beneficiary's share of policy proceeds is generally reduced if the contingent beneficiary outlives the insured. (C)The estate of the insured is commonly named as beneficiary to avoid transfer taxes. (D)The contingent beneficiary will receive policy proceeds only if the primary beneficiary predeceases the insured.
The contingent beneficiary will receive policy proceeds only if the primary beneficiary predeceases the insured.
All the following are qualifying events under COBRA EXCEPT (A)The employee dies. (B)The employee is fired for gross misconduct. (C)The employee's hours are reduced so he or she is no longer eligible for coverage. (D)The employee and his or her spouse have legally separated.
The employee is fired for gross misconduct.
All the following statements concerning group disability income contracts are correct EXCEPT (A)The insurance company usually offers a conversion policy to any terminating employee who was covered under the contract for at least 2 years. (B)The insurance company has the right to have a disabled employee examined by a physician of its own choice. (C)The insurance company may provide a cost-of-living adjustment to prevent inflation from eroding the purchasing power of benefits being received. (D)The insurance company often allows a worker to enter a trial work period in rehabilitative employment without having benefits totally terminated.
The insurance company usually offers a conversion policy to any terminating employee who was covered under the contract for at least 2 years. (A conversion privilege is rarely included in group disability income contracts.)
Sarah lives with her mother and stepfather. She is an eligible dependent for medical expense coverage under both of their medical expense plans as well as under the plan of her father. There is no court decree that establishes responsibility for Sarah's medical expenses. Which of the following statements describes the priority of benefits if all three plans contain the usual coordination-of-benefit (COB) provisions? (A)The mother's plan is primary, and neither the father's plan nor the stepfather's plan pays anything. (B)The mother's plan is primary, the stepfather's plan is secondary, and the father's plan pays last. (C)The father's plan is primary, the mother's plan is secondary, and the stepfather's plan pays last. (D)The mother's plan and father's plan each pay 50 percent of the expenses.
The mother's plan is primary, the stepfather's plan is secondary, and the father's plan pays last. (Under the usual COB provision, the plan of the parent with custody is primary, the plan of the stepparent who is the spouse of the parent with custody is secondary, and the plan of the parent without custody is tertiary.)
Ken has a personal auto policy (PAP) with coverage limits of $500,000 for liability (Part A), $15,000 for medical payments (Part B), $50,000 for uninsured motorists (Part C), and no underinsured motorists endorsement. If Ken receives $100,000 in bodily injuries as a result of an auto accident with another driver who has only the minimum state requirement of $35,000 of liability coverage, how would the two policies cover Ken's injuries if the other driver was at fault?
The other driver's policy would pay its limit of $35,000 while Ken's PAP would pay $15,000 under Part B with the remaining $50,000 not covered by either policy.
All the following statements concerning title insurance are correct EXCEPT (A)The policy limit is usually the purchase price of the property, even if the value increases because of inflation. (B)The premium is paid only once. (C)The policy guarantees that the owner will keep possession of the property if a defect in the title is discovered. (D)The policy provides protection only against unknown title defects that have occurred prior to the effective date of the policy but are discovered after the effective date.
The policy guarantees that the owner will keep possession of the property if a defect in the title is discovered. (Title insurance indemnifies the insured up to policy limits but provides no guarantee that the policyowner will retain possession of the property.)
Which of the following statements is correct if the life income settlement option in a cash value life insurance policy is exercised? (A)The policy will provide an income to beneficiaries for as long as the insured lives. (B)The policy's death benefit will be increased. (C)The policy's death proceeds will be used to purchase a single-premium annuity for the beneficiary. (D)The policy's periodic premium will be increased.
The policy's death proceeds will be used to purchase a single-premium annuity for the beneficiary.
All the following statements concerning life insurance policy loans are correct EXCEPT (A)A policy loan accrues interest on the borrowed funds at either a fixed rate or variable rate depending on the option selected by the policyowner at the time of application. (B)The policyowner is required to repay a policy loan before being permitted to surrender the policy for its cash value, make a withdrawal from the cash value, or take another policy loan. (C)If the insured dies while a policy loan is outstanding, the insurer recovers the outstanding balance of the loan and accrued interest from the death benefits. (D)A life insurance policy will terminate if the policy loan balance plus unpaid interest ever exceeds the policy's cash value.
The policyowner is required to repay a policy loan before being permitted to surrender the policy for its cash value, make a withdrawal from the cash value, or take another policy loan. (The policyowner is not required to repay a policy loan.)
All the following statements concerning the nonforfeiture options in life insurance are correct EXCEPT (A)All states have laws that require insurers to provide at least a minimum nonforfeiture value to policyowners. (B)The reduced paid-up option generally provides the same amount of death protection as the original policy, but for a reduced period of time. (C)If a policy lapses for nonpayment of premiums and another option has not been selected, the extended term option usually goes into effect automatically. (D)If a policy is surrendered for its cash value, all benefits under the policy cease.
The reduced paid-up option generally provides the same amount of death protection as the original policy, but for a reduced period of time. (The reduced paid-up option produces a reduced death benefit for the life of the insured.)
Which of the following statements concerning inpatient hospital care under Part A of Medicare is correct? (A)There is a $200 annual deductible. (B)Benefits are paid in full after the 60th day of hospitalization. (C)There is a lifetime limit on the number of days of treatment in psychiatric hospitals. (D)There is coverage for up to 210 days of care in each benefit period.
There is a lifetime limit on the number of days of treatment in psychiatric hospitals.
All the following statements concerning insurance underwriting are correct EXCEPT (A)An insurer attempts to select applicants who will have loss experience comparable to the company's expected loss experience. (B)The underwriting process often begins with the agent. (C)Underwriting is independent of insurance pricing. (D)Underwriters sometimes explain steps a borderline applicant can take to become acceptable.
Underwriting is independent of insurance pricing. (Underwriting involves both the selection and pricing of applicants.)
All the following statements concerning variable life insurance are correct EXCEPT (A)Agents who sell variable life policies must be licensed as both life insurance agents and securities agents. (B)Variable life policies provide guarantees of both the interest rate and a minimum cash value. (C)Variable life policies can be sold only after the prospective purchasers have had a chance to read the prospectus. (D)Variable life policies become more acceptable to consumers after a long period of stock market increases.
Variable life policies provide guarantees of both the interest rate and a minimum cash value. (Variable life policies provide no guarantee of either interest rate or minimum cash value.)
Which of the following statements concerning business uses of disability income insurance is correct? (A)Benefits from key employee disability policies are designed to provide additional disability income to valuable employees. (B)When the policy is used to fund a buy-sell agreement, the definition of disability in the policy should be the same as the definition used in the buy-sell agreement. (C)Business overhead policies tend to have benefit durations of between 5 and 10 years. (D)When the policy is used to fund formal salary continuation plans, the business must be both the owner and beneficiary of the policy.
When the policy is used to fund a buy-sell agreement, the definition of disability in the policy should be the same as the definition used in the buy-sell agreement.
All the following statements concerning life insurance dividend options are correct EXCEPT (A)With the accumulation-at-interest option, dividends will be kept in the equivalent of an interest-bearing account for the benefit of the policyowner. (B)With the cash option, dividends will be paid to the policyowner in cash. (C)With the fifth dividend option, dividends will be used to purchase 1-year term insurance. (D)With the paid-up additions option, dividends will be used to pay up the policy prior to age 65.
With the paid-up additions option, dividends will be used to pay up the policy prior to age 65. (With paid-up additions, each dividend is used to purchase fully paid-up whole life insurance.)
Which of the following is the standard inflation provision in most long-term care insurance policies? (A)a 3 percent simple annual benefit increase option (B)a 5 percent compound annual benefit increase option (C)a pay-as-you-go option without evidence of insurability (D)an automatic annual increase option based on the consumer price index
a 5 percent compound annual benefit increase option
A state requires prior approval of proposed rate changes only if they exceed 5 percent of existing rates. No prior approval is needed for proposed rate changes at 5 percent or less. This is an example of
a flex-rating law
Coverage E-Liability of a homeowners policy provides motor vehicle liability coverage for all the following motor vehicle exposures EXCEPT (A)a licensed Harley Davidson motorcycle while it is being ridden on the driveway at the insured location (B)a John Deere riding mower while it is being used to mow the insured's lawn (C)an unlicensed antique auto while it is in dead storage in the insured's garage awaiting restoration (D)an insured's motorized wheelchair while being used in a shopping mall
a licensed Harley Davidson motorcycle while it is being ridden on the driveway at the insured location (Homeowners policies do not provide liability coverage for vehicles licensed for use on public roads.)
A loss exposure is defined as
a loss that might occur
All the following are covered autos under the liability part (Part A) of the personal auto policy (PAP) EXCEPT (A)a nonowned van driven by the insured on a regular basis (B)a camper trailer owned by the named insurer (C)a borrowed auto used by the insured as a temporary substitute for a covered auto that was stolen (D)a newly acquired auto that replaces a covered auto listed in the policy
a nonowned van driven by the insured on a regular basis (The PAP precludes coverage for any nonowned vehicle furnished for the regular use of an insured.)
All the following are insured persons under the medical payments coverage of the personal auto policy (PAP) EXCEPT (A)a friend of the named insured who is injured while occupying the named insured's covered auto (B)a pedestrian who is struck and injured by the named insured's covered auto (C)the named insured who is injured while occupying a friend's auto (D)a member of the named insured's family who is struck and injured by an auto while crossing the street
a pedestrian who is struck and injured by the named insured's covered auto. (Medical payments provide benefits for a covered vehicle's occupants. It also covers the named insured or a family member who is a pedestrian struck by another vehicle.)
King purchased an insurance policy that will pay $200 for each day he is hospitalized, regardless of the amount billed by the hospital. This insurance policy is considered which of the following? (A)a bilateral contract (B)a contract of indemnity (C)a valued contract (D)an impersonal contract
a valued contract
Insurance Services Office (ISO) is which of the following? (A)an advisory organization that develops standard policies for homeowners insurance and other lines (B)a credit bureau that maintains and disseminates credit information on applicants for property and liability insurance (C)a private organization that gathers and maintains medical information disclosed by applicants for life insurance (D)a voluntary association serving state insurance commissioners
an advisory organization that develops standard policies for homeowners insurance and other lines
The extension-of-benefits provision under a group medical expense policy applies to which of the following persons when coverage terminates? (A)anyone who is aged 21 or under (B)anyone who is totally disabled as a result of an illness or injury that occurred while the person was covered under the contract (C)the employee and any dependents if the employee is eligible for unemployment insurance or public assistance (D)any employee who has at least 10 years of service
anyone who is totally disabled as a result of an illness or injury that occurred while the person was covered under the contract
When using the net payment cost index to determine the cost of a life insurance policy, it is necessary to consider all the following factors EXCEPT (A)the policy's accumulated dividends (B)the policy's accumulated premiums (C)an interest rate (D)cash value
cash value (The 20th-year cash value is not subtracted in calculating the net payment cost index.)
Which of the following types of insurance is often sold by mortgage lenders to provide the funds necessary to pay off a 10-year mortgage loan if the insured dies? (A)decreasing term (B)increasing term (C)modified whole life (D)10-year renewable term
decreasing term
Jane, a restaurant critic on the staff of Local Newspaper, got a bad case of food poisoning while eating a tropical fruit salad at the Hungry Tiger restaurant she was reviewing. Because she was injured during the course of her employment, the insurance company providing Local Newspaper's workers' compensation insurance paid Jane's hospital expenses. That insurance company then sued Hungry Tiger, thereby exercising its legal rights of recovery under which of the following legal bases?
doctrine of subrogation
All the following are ways in which Medicare prescription drug plans may differ from the standard benefit structure specified by federal law EXCEPT (A)lower initial deductibles (B)the use of tiered copayments (C)more extensive formularies (D)fewer benefits in the coverage gap
fewer benefits in the coverage gap (The standard benefit structure does not provide benefits in the coverage gap, but some plans that provide more comprehensive benefits may provide such benefits.)
Ohm Insurance Company, incorporated in Springfield, Illinois, was formed in 1952 by a group of investors who own shares in the company. Ohm is currently licensed to sell life insurance in the states of Illinois, Pennsylvania, and Maryland. When Ohm is doing business in Pennsylvania, which of the following would be a correct classification of Ohm?
foreign insurer
Insurance policies that give the policyowner the right to renew coverage but do not guarantee future rates are referred to as
guaranteed renewable
Phantom Insurance Company employs claims representatives based in five Midwestern states but has no claims employees in California, where one of its policyowners is involved in a serious auto accident. Phantom will most likely use which of the following to adjust the claim?
independent adjuster
Sam and Janet Evening wish to purchase an annuity that provides an income as long as at least one of them is alive. They have no children and no interest in passing their assets to heirs. Which of the following annuities is best suited for their purposes? (A)cash refund annuity (B)installment refund annuity (C)joint-and-last survivor annuity (D)joint-life annuity
joint-and-last survivor annuity
Mr. Smith has health problems that reduce his life expectancy. All the following are methods life insurers use to provide coverage to persons like Mr. Smith EXCEPT (A)assess a flat extra premium (B)create a lien against the policy (C)limit the policy's protection period (D)rate the policy using an extra percentage table
limit the policy's protection period (The approaches described in (A), (B), and (D) make permanent insurance available to substandard applicants.)
Daisy does not own a car but occasionally borrows one from friends. The friends have little money, and if they have insurance at all, it is only for minimum limits. Daisy, on the other hand, is well-to-do. To protect herself against a liability claim while she is driving a friend's car, Daisy can purchase a personal auto policy (PAP) with a(n)
named nonowner coverage endorsement
The steps in the risk management process include all the following EXCEPT (A)administration (B)regulation (C)identification (D)measurement
regulation (The steps in the risk management process are risk identification, risk measurement, choice and use of alternative methods of treatment, and risk administration.)
The workers' compensation benefits provided by a Workers Compensation and Employers Liability insurance policy are (A)specified by state law (B)scheduled in the policy (C)determined by the courts (D)subject to a dollar limit specified in the policy
specified by state law
Depending on the options in his or her area, a hard-to-insure driver may be able to find auto insurance coverage from any of the following EXCEPT (A)the Federal Insurance Management Association (FIMA) (B)a specialty insurer (C)an automobile insurance plan (D)a joint underwriting association (JUA)
the Federal Insurance Management Association (FIMA) (FIMA administers the national flood insurance program, which provides coverages for dwellings and commercial buildings and their contents.)
Basic benefits that must be included in all Medicare supplement (medigap) policies include all the following EXCEPT (A)the first 3 pints of blood each year (B)the Part B percentage participation for Medicare-approved charges for physicians' and medical services (C)the hospital inpatient deductible under Part A of Medicare (D)365 additional days of hospitalization coverage after Medicare benefits end
the hospital inpatient deductible under Part A of Medicare (Although coverage for the Part A Medicare deductible is available in some plans, it is not one of the basic benefits that must be offered in all Medicare supplement (medigap) plans.)
Which of the following definitions of disability used in a group disability income plan is the most restrictive or harshest for the insured employee? (A)the inability of the employee to perform each and every duty of his or her own occupation (B)the inability of the employee to engage in any occupation for compensation (C)the inability of the employee to engage in any occupation for which he or she is qualified by training, education, or experience (D)the inability of the employee to engage in his or her own occupation for 24 months and any occupation for which he or she is qualified thereafter
the inability of the employee to engage in any occupation for compensation
All the following are reasons for demutualization of an insurance company EXCEPT (A)to enable the insurer to raise capital quickly (B)to enable the insurance company to diversify its activities by acquiring other insurers or other types of financial institutions through the issuance or exchange of stock (C)to better protect the insurer from a hostile takeover (D)to facilitate payment of certain types of noncash compensation to the insurance company's key executives and board members
to better protect the insurer from a hostile takeover (Vulnerability to a hostile takeover is a disadvantage of demutualization.)
An insurance company that has not gained approval to place insurance business from a department of insurance in the jurisdiction where it or a producer wants to sell insurance is known as a(n)
unauthorized entity
Which of the following is most likely to be a condition that will result in the payment of unemployment compensation benefits? (A)unemployment because of a labor dispute (B)unemployment as a result of voluntarily leaving a job without good cause (C)unemployment resulting from discharge that was prompted by misconduct (D)unemployment that results from adverse economic conditions
unemployment that results from adverse economic conditions
Which of the following types of life insurance allows the policyowner to increase or decrease premium payments to virtually any amount desired as long as there is sufficient cash value to cover mortality costs and expenses? (A)current assumption whole life insurance (B)variable life insurance (C)universal life insurance (D)ordinary life insurance
universal life insurance
Managed care plans are characterized by all the following EXCEPT (A)unrestricted access to physicians and hospitals (B)utilization review at all levels (C)an emphasis on preventive care and healthy lifestyles (D)providers of medical care sharing in financial results
unrestricted access to physicians and hospitals (One of the basic characteristics of managed care plans is controlled access to specialists and hospitals.)
