IRM study Sheet

basing rates on the same mortality table

Common features of both life insurance and annuities include all the following EXCEPT

see 6.11

Describe "insurable interest" in life insurance. When must the policyowner have an insurable interest in the life of the insured

see 6.10

Describe the principle of indemnity.

Open competition

Some states rely on market forces to determine rates for certain lines of insurance. This approach to rate regulation is known as which of the following

page 1.4

What is a peril and how is it different from a hazard? describe a specific hazard and a peril that may be associated with that hazard

1. optionally renewable

You recently purchased an insurance policy. Although the insurer cannot terminate the policy during its annual term, the insurer has the right to refuse to renew the contract and the right to alter policy provisions if the contract is renewed. W h a t type of renewable provision is this?

Both I. and II.

A client who goes on a whitewater rafting trip is asked to sign a hold-harmless agreement. Which of the following statements about hold-harmless agreements is (are) correct? I. A hold-harmless agreement is a type of noninsurance transfer. II. A person signing a hold-harmless agreement promises to assume responsibility for losses that might otherwise be somebody else's responsibility.

File proof of financial responsibility

A driver who has been convicted of a serious offense, such as drunk driving or reckless driving, is often required by law to do which of the following?

an emphasis on cost containment through the use of coinsurance and large deductibles

All the following are characteristics of HMOs EXCEPT

intangible property

All the following are classes of property typically covered under commercial crime forms EXCEPT

participating in a share-the-expense car pool

All the following are exclusions that preclude liability coverage (Part A) under an unendorsed Personal Auto Policy (PAP) EXCEPT

The prior policyowner must still continue to pay the policy premiums.

All the following are potential disadvantages of a viatical settlement EXCEPT:

orthopedic shoes

All the following medical expenses are covered under Medicare Part B EXCEPT

The personal injury endorsement provides bodily injury liability coverage for insureds who operate a day care center.

All the following statements concerning homeowners policy endorsements are correct EXCEPT

Application and enforcement of insurance laws are carried out by the National Association of Insurance Commissioners

All the following statements concerning insurance regulation are correct EXCEPT

Contributions by the employer for an employee's coverage create an income tax liability for the employee.

All the following statements concerning the federal income tax treatment of insured group medical expense plans are correct EXCEPT:

The tax rate for self-employed persons is one-half of the combined tax rate for employees and employers.

All the following statements concerning the financing of Social Security and Medicare are correct EXCEPT

Most people are more risk tolerant than they are risk averse.

All the following statements concerning the findings of behavioral psychologists on the subject of risk tolerance are correct EXCEPT

If the insured survives the grace period, the insurer may deduct one month's premium from the cash value

All the following statements concerning the grace period clause in a life insurance policy are correct EXCEPT:

A policy must allow the applicant to have a 90-day free-look period after the policy's delivery.

All the following statements concerning the marketing provisions of NAIC model legislation for long-term care insurance are correct EXCEPT:

The cash value is subtracted from the amount of accumulated premiums at the end of the time period

All the following statements concerning the net payment cost index approach to measuring life insurance costs are correct EXCEPT

Capital appreciation is recognized by allocating additional accumulation units to participants

All the following statements concerning variable annuity accumulation units are correct EXCEPT:

Porcine Bank is obligated to pay the premium on this policy if Taylor misses a payment.

Among the insurance policies provided for your review by your client, Taylor, is a personal auto policy with a loss payable clause that names Porcine Bank as a loss payee. Based on this information, all the following statements concerning this situation are correct EXCEPT:

Foreign insurer

An insurance company incorporated in one state is considered to be which of the following by other states in which it is licensed to write business

unauthorized entity 5.21

An organization 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 an

Phil's 30-year-old daughter who is a full-time college graduate student and lives away from home

Before recently marrying Lynn, Phil had taken out a homeowners policy that listed his name in the policy declarations. All the following are considered insureds under Phil's policy EXCEPT

negligence

Behavior in any circumstances that fails to measure up to that expected of a careful, prudent person in like circumstances constitutes

I. only

Beth faces the risk that her car could run into someone else's car as a result of her negligence. If that happens, Beth would have to pay the costs of repairing the other car. This risk can be categorized as which of the following? I. A liability risk II. A speculative risk

The friend's PAP provides primary coverage and Mary's PAP is excess.

Both Mary and her friend have personal auto policies (PAPs). If Mary is involved in an auto accident while driving her friend's car, how do the two PAPs coordinate their liability coverage (Part A)

Ordinary life insurance- premiums paid until death offers the optimal combination of protection and savings. Limited payment life insurance- only pays premiums for a specified number of years. Single premium whole life- one giant payment for your policy that is hard to afford. Vanishing premium- used policy dividends pay all the remaining premiums as soon as the dividends are adequate.

Briefly describe the various types of permanent life insurance policies (one sentence for each type

$1,200,000

Chris purchased an apartment building 10 years ago for $800,000. Because the building has had 10 years' worth of wear and tear, Chris figures it has depreciated by at least 10 percent. However, a nearly identical apartment building in the same area recently sold for $1.5 million. A contractor tells Chris it would cost about $1.2 million to build a similar apartment building on a vacant lot today. Based on this information, the replacement cost value of Chris's building appears to be approximately

Right to replace term coverage with permanent individual coverage AA- new premium bases on insured age at time of conversion OA- New Premium is based on age when first taken

Describe a term life insurance policy's convertibility feature (including the attained age method and the original age method)

see 7.15

Describe how Social Security benefits are reduced or completely eliminated because of the earnings test.

see 14.36

Describe the Social Security offset rider in a disability income policy. What is the purpose of this provision

fully replace lost income for a limited period of time, starting first day of disability

Describe the benefit provisions of a typical sick-leave plan.

See page 10.11

Describe the capital needs analysis approach for determining an appropriate amount of life insurance. Give an example

by calcuating to force normal losses and estimate losses in catastrophe to avoid operating at a loss

Discuss how insurers use probability concepts. What is the purpose?

name of insurance company details specific to policy description of type of insurance statement about fee-look provision Insurance promise to pay

Every insurance contract has a set of declarations. What primary declarations do typical insurance policies include?

Ordinary life insurance

For a 35-year-old individual, which of the following types of whole life insurance would currently provide the greatest amount of permanent insurance protection per dollar of premium outlay?

The PAP will pay $300,000, and the umbrella policy will pay $200,000

George has a personal auto policy (PAP) with a liability limit of $300,000. He also has a personal umbrella policy with a limit of $2,000,000 and a self-insured retention of $1,000. How much will each policy pay if an injured person obtains a judgment of $500,000 against George as a result of an auto accident?

II. only

Group long-term care coverage differs from individual coverage in which of the following ways? I. Employees typically have more choice in amount and duration of benefits under group coverage. II. The cost of group coverage is usually less than the cost of individual coverage.

Policy loans give the policy owner access to the cash value that accumulates inside the policy without having to terminate the policy. Some policies limit you to 90 % of cash value, but most are over 90%. You indicate how much you would like to borrow in your request. They accrue interest on the borrowed funds either with a fixed or variable rate. You can pay the interest in cash or add the interest to the balance of the loan. There is no repayment schedule or repayment requirement. If you do not pay anything the insurance company recovers either from death benefits or cash surrender value.

How do policy loans in a life insurance policy work?

Both I. and II.

I.The PPGA's main responsibility is to sell the insurer's products rather than build an agency force. II. The PPGA may be expected to meet certain sales quotas by the insurer but may also be allowed to represent other insurers

I. Only

I.The primary insurer is responsible for paying the entire claim to the claimant and is reimbursed by the reinsurer. II. The policyowner is notified when a reinsurance agreement is made between the primary insurer and the reinsurer.

No

In a variable life insurance policy, does the policy provide a guaranteed minimum cash value?

Yes

In a variable life insurance policy, is the policy owner allowed to select the funds in which the policy's cash value is invested

disabled, or suffering from end-stage renal disease

In addition to most persons over age 65, who else is eligible for Medicare Part A benefits?

1.donee feels no richer after 2. donor financial position not affected 3. advantage for older donors

In what circumstances would financial advisors recommend a life insurance policy gifting program to their clients?

$600

Jeff currently earns $3,000 per month. He has an individual disability income policy that will pay $2,000 per month if he is totally disabled. The policy also provides residual disability benefits. If Jeff becomes disabled and earns only $2,100 per month, how much would he collect each month under his disability income policy?

he can continue his medical expense coverage for up to 18 months

John, aged 38 and single, decided to quit his job with a very large corporation and spend several months traveling around the United States. He was dissatisfied with his former job and plans to seek employment with a small firm after his travels. How does COBRA affect John's ability to continue his existing medical expense coverage?

The employer's premium contributions are deductible as a business expense.

Juanita is covered under her employer's group long-term disability income plan. Juanita pays 40 percent of the premium cost, and her employer pays 60 percent. Which of the following statements concerning the federal income tax treatment of this arrangement is correct?

Offer and acceptance- written application and premium must be submitted in exchange for the promise, Legal purpose- cannot be illegal. Contract by an unlicensed company is illegal and cannot be speculative. Competent parties- cannot be a minor, intoxicated or legally insane. Consideration- something of value must be exchanged.

List the essential elements of a legally enforceable insurance contract.

family/friends, personal financial resources, public assistance

List the methods used to finance long-term care needs. Who is eligible for Medicaid to pay for long-term care?

provides alternative ways in which the policys cash value can be taken

List the nonforfeiture options in a whole life insurance policy.

Workers' compensation and employers liability insurance

Lucy became disabled as the result of a tragic accident in the candy factory where she worked. Her husband, Ricky, was not injured, but he had to hire a housekeeper to provide childcare and handle other tasks formerly handled by Lucy. Ricky sued the candy factory for loss of services. Which of the following types of insurance, if carried by the candy factory, will respond to Ricky's claim?

purchasing the lowest liability limits that satisfy compulsory insurance requirements

Many clients with substantial assets to protect can reduce their auto insurance costs without exposing their assets to serious loss by doing all the following EXCEPT

respite care

Many long-term care policies provide benefits for occasional full-time care so that familymembers who are providing home care can take a needed break. referred to as

prioritizing insurance coverages

Methods of risk identification relevant for households or small businesses include all the following EXCEPT

persons traveling abroad

Temporary medical insurance is designed for all the following groups of individuals EXCEPT

both I. and II.

The key employees of a sole proprietorship are logical choices to be purchasers of the business at the sole proprietor's death for which of the following reasons? I. They are familiar with the business. II. They want to protect their own future employment.

high blood pressure

The majority of life insurance companies proceed on the assumption that the additional hazard of a substandard risk increases with age, remains approximately constant at all ages, or decreases with age. increases with age is

The contract must provide for a cash surrender value that can be borrowed or pledged as collateral for a loan.

Under the Health Insurance Portability and Accountability Act, a long-term care insurance policy is eligible for favorable tax treatment as a "qualified long-term care insurance contract" if the policy meets certain requirements. These requirements include all the following EXCEPT:

Retention or risk retention

What is generally the most cost-effective means for dealing with pure risks involving the possibility of high-frequency, low-severity losses?

Variable Universal Life insurance

What type of life insurance allows the policyowner to direct the investment portfolio and offers both premium and death benefits design flexibility ?

The insurer will have to pay $100,000 to the beneficiary because the policy is incontestable.

When Doug purchased his $100,000 life insurance policy 5 years ago, he indicated in the application that his age was 35. He has been paying a premium of $900 ($0.90 per $1,000 of insurance) each year. When Doug committed suicide this year, the insurance company learned that he was actually 40 years old when he completed the application and thus should have been paying a premium of $1,000 ($1 per $1,000 of insurance) each year. Which of the following statements concerning the payment of the death benefit to Doug's beneficiary is correct?

365 additional days of hospitalization coverage after Medicare ends

Which of the following is a basic benefit that must be included in all Medicare supplement (medigap) policies?

Dependent, unmarried stepchild under age 19

Which of the following is usually eligible for coverage as a dependent under a major medical expense plan?

I. only

Which of the following situations would be covered under the (Coverage E) personal liability portion of Section II of a homeowners policy? I. The insured is sued by his landlord for water damage to the insured's apartment. II. The insured is sued after a friend suffered injury from using illegal drugs the insured sold him.

H0-5 comprehensive Form

Which of the following standard, unendorsed homeowners policy forms provides the broadest coverage for a free-standing single-family residence and its contents?

Most states pay regular benefits for a maximum duration of 26 weeks. 7.49

Which of the following statements about unemployment insurance benefits is correct

Coverage in each state is usually written by a syndicate of private insurers that are assessed for any losses of the plan if premiums are inadequate.

Which of the following statements concerning FAIR plans is correct?

A. It is a voluntary plan with a monthly premium that may be waived for persons with very low incomes. 7.31 B. It eliminates the need for formularies by covering all prescription drugs. C. It has a $1,000 annual deductible, after which all drug costs are paid in full. D. It prohibits employers from providing prescription drug benefits to retirees. Answer A

Which of the following statements concerning Medicare prescription drug coverage is correct

Neither I. or II.

Which of the following statements concerning a deferred annuity is (are) correct? I. Deferred annuities must be purchased with periodic premiums paid over a period of time. II. Because of the delay feature, a deferred annuity is unsuitable as a vehicle to accumulate a sum for old age.

Neither

Which of the following statements concerning a joint-and-last survivor annuity is (are) correct? I. It must be sold as an immediate annuity. II. Annuity payments cease upon the first death of an annuitant.

II. only

Which of the following statements concerning annuities utilized in structured settlements is (are) correct? I. If the claimant is expected to have a shorter life expectancy due to the injuries, the cost of a life annuity will be at rates higher than standard. II. If the claimant is expected to have no reduction in life expectancy due to the injuries, the cost of a life annuity will be at standard rates.

I. only

Which of the following statements concerning business overhead insurance is (are) correct? I. These policies provide funds that can be used to cover many of the ongoing costs of operating a business while the owner is totally disabled. II. These policies tend to have benefit durations of 5 years or more and have fairly long waiting periods.

II. Only

Which of the following statements concerning claims adjustment is (are) correct? I. A public adjuster is hired on a fee basis by insurance companies to settle claims. II.An independent adjuster is retained by the insured to negotiate the loss settlement.

I only

Which of the following statements concerning coinsurance under group major medical plans is (are) correct? I. Different coinsurance percentages may apply to different categories of medical expenses. II. The coinsurance percentage typically is applied to a person's covered expenses prior to subtracting the deductible amount.

I. only

Which of the following statements concerning directors and officers (D & 0) liability insurance is (are) correct? I.Covered claims often result from stockholders' allegations that they have been financially harmed by corporate mismanagement. II.People are reluctant to serve on corporate boards unless the corporation has D & 0 insurance.

Benefits are payable as long as the disabled worker is unable to perform his or her regular occupation

Which of the following statements concerning disability benefits under Social Security is correct?

Unused amounts in an account accumulate on a tax-free basis for federal income tax purposes.

Which of the following statements concerning health savings accounts (HSAs) is correct?

Both

Which of the following statements concerning insurance underwriting is (are) correct? I. Underwriting is the selection and pricing of insurance applications that are offered to an insurer. II.Underwriting attempts to avoid adverse selection by individuals who purchase insurance.

Neither I. or II.

Which of the following statements concerning long-term care insurance contracts that pay benefits on a reimbursement basis is (are) correct? I. They pay a predetermined dollar amount regardless of the cost of care. II. They must be coordinated with Medicare if they are tax-qualified policies.

II. only

Which of the following statements concerning modified endowment contracts (MECs) is (are) correct? I.Any policy that is paid up prior to age 65 qualifies as a MEC. II.A penalty tax applies to withdrawals from a MEC by a person under age 59

Both I. and II.

Which of the following statements concerning optional life insurance policy provisions is (are) correct? I. The accelerated benefits provision allows for withdrawal of a portion of a policy's death benefit if the insured is terminally ill. II. The assignment provision describes the conditions under which the policyowner may have the right to transfer some or all ownership rights to another person.

They provide the highest level of benefits if care is received from network providers.

Which of the following statements concerning preferred-provider organizations (PPOs) is correct?

It is common to exclude benefits for a quantity of drugs in excess of a specified maximum amount each time a prescription is filled.

Which of the following statements concerning prescription drug carve-outs is correct?

Both I and II

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 market place. II. Benefits for preexisting conditions are often subject to a waiting 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.

A. A revocable beneficiary must consent before the policyowner can designate another beneficiary. B. Insurers often limit the use of class designations because they present problems of identifying who is in the class. 9.26 C. A policyowner can exercise all policy ownership rights without notifying the irrevocable beneficiary. D. Naming the insured's estate as primary beneficiary avoids transfer taxes. Answer B

Which of the following statements concerning the designation of a beneficiary for a life insurance policy is correct?

Premiums paid by a self-employed individual for business coverage are a deductible business expense.

Which of the following statements concerning the federal income tax treatment of property and liability insurance is correct?

II. only

Which of the following statements concerning the settlement options in a whole life insurance policy is (are) correct? I. The policyowner must select a settlement option when applying for insurance. II. Settlement options provide alternative methods for distributing the policy's death benefit.

Both I. and II.

Which of the following statements concerning the trust endorsement to a personal auto policy (PAP) is (are) correct? I. The endorsement modifies the PAP to handle situations in which the vehicle is titled solely in the name of a trust. II. A client who establishes a revocable living trust for estate planning reasons may need to add this endorsement to his or her PAP.

II. only

Which of the following statements concerning the typical conversion provision found in group medical expense contracts is (are) correct? I. It allows the insurer to exclude preexisting conditions in a conversion policy. II. An individual normally has 31 days after termination of group coverage to elect a conversion policy.

I. only

Which of the following statements concerning the use of Medicaid to meet long-term care needs is (are) correct? I. It is available only if a person is poor or has a low income and has exhausted most other assets. II. It eliminates the social stigma of accepting welfare.

II. only

Which of the following statements concerning the usual coordination-of-benefits (COB) provision in group medical expense plans is (are) correct? I. Coverage as a retired employee is primary to coverage as an active employee. II. Coverage as an active employee is primary to coverage as a dependent.

It will pay to replace her fish.

While Ruth was on a winter vacation, somebody stole the large outdoor propane tank that fuels her furnace. She returned home to find severe plumbing damage because many frozen pipes burst when her furnace stopped operating. The fish in her aquarium also died because of the lack of heat. She rented a hotel room, because her house cannot be occupied without heat or plumbing. Ruth has an H0-3 policy with adequate limits. All the following statements concerning her homeowners insurance coverage for this incident are correct except