final part 1
Claiming that a theft happened when it did not for the purposes of collecting insurance proceeds is an example of a a. morale hazard. b. moral hazard. c. risk. d. physical hazard.
The correct answer is (B). Fraud is categorized as a moral hazard.
Each of the following circumstances represents an insurable risk EXCEPT: a. Jennifer was in a hurry, and on her way to work, she received a traffic ticket for speeding. b. Hank's automobile was damaged in an unavoidable accident during an ice storm. c. Bobby incurred medical costs when he was hit in a crosswalk by a motorist. d. As a result of an unknown gas leak, Sandra's car catches on fire in her driveway in the middle of the night.
.The correct answer is (A). The risk of receiving a speeding ticket is not an insurable risk because the loss was not due to accidental causes. Jennifer was speeding because she was late. She could have left earlier and avoided the risk of receiving a traffic ticket. All of the other risks listed are insurable, since they result from accidental circumstances, the aggregate losses are measurable by the insurer, the probability of loss is measurable through morbidity statistics, and the losses are not catastrophic to the insurer.
Carlotta is struck in the rear of her candy-apple-red sports car. Her injuries are severe, leaving her unable to work as a hostess at a high-end restaurant in New Orleans. The restaurant offers employees disability insurance, which Carlotta has elected as part of her employee benefits package. She pays for 50 percent of the insurance on a pretax basis. The employer pays the remainder of the policy premium. Her monthly benefit is $2,500 per month. Which of the following is correct? One hundred percent of her benefit will be subject to income tax. Two-thirds of her benefit will be subject to income tax. Fifty percent of her benefit will be subject to income tax. None of her benefit will be subject to income tax.
The correct answer is (A). All of her premiums are paid on a pretax basis , therefore 100 percent of her benefit will be subject to income tax
Long-term care needs are important for those who are aged 65 and older. Which of the following statements is correct regarding people who are 65 years old or older? Fifty percent of people over age 65 will need long-term care at some point in their lives. Men are more likely than women to be ADL-disabled. It is more likely that a woman will be ADL disabled than have an auto accident. Ninety percent of people over age 65 will need long-term care at some point in their lives.
The correct answer is (C). LTC needs are much more likely than auto accidents or house fires, and women are more likely than men to need help with activities of daily living. Seventy percent of people over the age of 65 will need long-term care at some point in their lives.
All of the following are basic characteristics of health maintenance organizations (HMOs) EXCEPT A. the use of an organized system to deliver medical services to the members. B. broad, comprehensive health services that are provided to the members. C. an emphasis on cost containment through the use of coinsurance and large deductibles. D. a specified geographic region in which members must live.
The answer is (C). Large deductibles and coinsurance are generally not emphasized in HMOs.
All of the following statements regarding flexible spending accounts (FSAs) are correct EXCEPT: a. Funds may be used for optional medical procedures like LASIK eye surgery. b. Funds may be used for child care. c. Funds must be used by the end of the calendar year. d. The accounts are funded with pretax dollars.
The answer is (C). Money in FSA accounts must be used by 2 ½ months after the end of the plan year or the funds are lost.
All the following statements concerning insurance underwriting are correct EXCEPT: a. An insurer attempts to select applicants who will have an expected amount of loss that is comparable to the company's expected loss. b. The underwriting process often begins with the agent. c. Underwriting is independent of insurance pricing. d. Underwriters sometimes explain steps that a borderline applicant can take to become acceptable.
The answer is (C). Underwriting involves both the selection and pricing of applicants.
Which of the following allows eligible individuals an opportunity to have COBRA continuation for 36 months? a. Termination of employment b. Moving from full-time to part-time employment c. The employee meeting the Social Security definition of disability d. The death of a covered employee
The answer is (D). Due to the significant impact on family, the death of a covered employee allows the impacted family members 36 months to leverage the deceased employee's plan through COBRA. Options (A) and (B) allow for 18 months of COBRA, while option (C) allows for 29 months.
All the following statements concerning health savings accounts (HSAs) are correct EXCEPT: A. Contributions for an employee can be split between the employee and his or her employer. B. The high-deductible health plans used with HSAs are permitted to waive the deductible requirement for preventive care. C. Tax-free distributions can be used to pay premiums for long-term care insurance up to specified limits. D. 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.
The answer is (D). The size of an HSA balance carried over from prior years has no effect on a current year's contribution.
Abel is 30 years old and recently began a job with a salary of $60,000. He has saved about $25,000 in cash and has no debts. He is single and lives with his parents, who are not dependent on him for financial support. According to the needs approach, what is the amount of life insurance that Abel currently needs? a. $0 b. 60,000 c. $575,000 d. $600,000
The correct answer is (A). Abel's current need for life insurance is $0 because he has no dependents.
All of the following are steps in the seven-step management process EXCEPT: a. Determine the objectives of the risk management program. b. Identify the risks to which the individual is exposed. c. Determine the alternatives for managing the risks. d. Do not alter the risk management plan, even if there have been changes in the client's circumstances.
he correct answer is (D). Once a risk management plan is established, it is very important to monitor and review the plan for changes that occur over time.
Which one of the following individuals would not qualify for long-term care benefits? Matt has kidney cancer and is expected to live only another 5 months. Pat is 88 years old and cannot prepare his own food or dress himself. He has been this way for the last 12 months. Jack had an auto accident and is unable to use the toilet or dress himself. He has been this way since the accident, which was 9 months ago. Al is 92 years old and legally blind. He is unable to manage his continence. He falls often and cannot get up. Al poses a danger to himself due to his condition.
Hide Feedback The correct answer is (B). To qualify for benefits, the insured must have a terminal illness (expected to result in death within 6 months) or be chronically ill (unable to perform two of the six ADLs). Matt is terminal and will therefore qualify for benefits. Pat does not meet the definition for chronically ill, but Jack and Al do meet the definition.
Which of the following statements concerning the need for long-term care insurance is (are) correct? I. Private medical expense insurance policies (both group and individual), in some cases, provide coverage only if a person also needs medical care; however, benefits are not provided if a person is merely a senior citizen "old" and needs someone to care for him or her. II. Medicare is inadequate to cover long-term care because it does not cover custodial care if that is all that is needed. A) I only B) II only C) Both I and II D) Neither I nor II
Hide Feedback The correct answer is (C). Neither private medical expense insurance nor Medicare is adequate to cover the risks of long-term care.
How should the risk potential of tornado damage to a personal residence be addressed? a. Risk avoidance b. Risk reduction c. Risk retention d. Risk transfer
The correct answer is (D). These types of risks do not happen often, but when they do, they may be severe and therefore should be transferred.
Regarding the advantages of a preferred-provider option (PPO), all of the following are correct EXCEPT: A. A gatekeeper is required for specialist consultations. B. A primary care physician is not required. C. Health care costs are low when the insured uses in-network providers. D. Yearly out-of-pocket costs are limited.
The answer is (A). An advantage of a PPO is that there is no gatekeeper or primary care physician that serves in that role.
Which of the following statements regarding health savings accounts (HSAs) is (are) correct? I. Employees must have a high-deductible plan to qualify for an HSA. II. Employer contributions to a health savings account are considered income for tax purposes. A) I only B) II only C) Both I and II D) Neither I nor II
The answer is (A). You must have a high-deductible plan to qualify for an HSA. Employer contributions are not considered taxable income.
Henry 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 Henry incurs covered medical expenses of $15,000 during the year, how much will be paid by his employer's plan? a. $10,500 b. $12,000 c. $13,000 d. $14,000
The answer is (B). His employer's plan will pay $12,000. If Henry incurs $15,000 of covered medical expenses, he must pay $1,000 out-of-pocket to meet the deductible. Of the remaining $14,000 of expenses, $8,000 of it is subject to the 75 percent coinsurance provision. This means that Henry must pay another $2,000 (that is, .25 × $8,000 = $2,000) out-of-pocket for a total amount of $3,000 (that is, $1,000 deductible + $2,000 coinsurance = $3,000). Subtracting $3,000 from $15,000 leaves $12,000 for the medical expense plan to cover.
Disability policies have many characteristics and provisions. Which of the following statements is correct? Noncancelable policies prevent the insurance company from cancelling the policy as long as the premiums are paid. Guaranteed renewable and noncancelable disability policies often have policy increases. Guaranteed renewable and noncancelable disability policies always provide protection for the insured until the insured turns 65 years old. Guaranteed renewable policies can experience premium increases based on the health conditions of the insured.
The correct answer is (A). Guaranteed renewable disability policies and noncancelable disability policies provide protection for the insured. However, guaranteed renewable policies may experience premium increases on a class basis. Neither type will always provide protection until age 65. Rather, there will be a stated term or age in the agreement.
Samuel is comparing two health insurance policies that have similar benefit provisions. One is guaranteed renewable, and the other is noncancelable. Samuel is not sure of the difference between these provisions, and he has come to you for help. Which of the following statements is correct? A. Noncancelable policies guarantee policy renewal until the client is 65 years old. There are no premium increases. B. Guaranteed- renewable policies permit the insurance company to increase the premium based on the insured's claim experience, but the insurance company must offer to renew the policy. C. Noncancelable policies are generally less expensive than guaranteed- renewable policies. D. Guaranteed- renewable policies may be renewed at the sole discretion of the insurer.
The correct answer is (A). Noncancelable policies fix the premium, which cannot then be increased during the policy period. Option (B) is incorrect because guaranteed- renewable policies do not permit the insurance company to increase the premium based on the insured's claim experience; premiums can only be increased based on class claim experience. Option (C) is incorrect because guaranteed- renewable policies are less expensive than noncancelable policies. Option (D) is incorrect because guaranteed- renewable policies are renewed at the sole discretion of the insured.
The principle of indemnity requires that a. a person is entitled to compensation only to the extent that financial loss has been suffered. b. the insured cannot indemnify himself from both the insurance company and a negligent third party for the same claim. c. the insured must be subject to emotional or financial hardship resulting from the loss. d. the insured and the insurer must both be forthcoming with all relevant facts about the insured risk and the coverage provided for that risk.
The correct answer is (A). Option (B) describes a subrogation clause, option (C) describes the principle of insurable interest, and option (D) describes the principle of utmost good faith.
The National Association of Insurance Commissioners (NAIC) assists in the regulation of insurance by I. direct involvement in the development of specific regulations for all states to follow. II. the regulation of the insurance commissioners of all states. III. indirect involvement in the exchange of information and preparation of recommendations. IV. ensuring that the insurance regulations for all states are uniform. a) III only b) I and II c) I, III, and IV d) I, II, III, and IV
The correct answer is (A). The National Association of Insurance Commissioners is involved in the regulation of insurance indirectly and accredits state insurance regulatory offices. The NAIC does not regulate states, nor is state insurance regulation uniform.
All of the following regarding short-term disability coverage and long-term disability coverage are true EXCEPT: It is not important to coordinate short-term disability coverage with long-term disability coverage. Short-term coverage may range from 0 to 2 years. Long-term benefits may continue until retirement. The combination of short- and long-term coverages are common in group insurance offerings.
The correct answer is (A). The benefits of short-term disability coverage and the benefits of long-term disability coverage should be coordinated so that there is no gap in coverage between short-term disability and long-term disability.
A client dies and you meet with the spouse so that she can explore settlement options with you. After a complete review of her needs, she decides that she would like to preserve the death benefit on deposit and receive periodic payments of interest on the policy proceeds. The correct term for this settlement selection is a. an interest-only settlement option. b. an annuity. c. a life-income-with-period-certain option. d. a lump-sum option
The correct answer is (A). While the other arrangements are potential selections for settlement, the one she selects is the interest-only settlement option.
Amber owns a house with a replacement cost of $500,000. She purchases $300,000 of insurance with an 80 percent coinsurance requirement and a $500 deductible. If Amber's house is hit by a hurricane and she suffers a $150,000 loss, what will the insurer pay? A. $74,500 B. $112,000 C. $119,500 D. $149,500
The correct answer is (B). (amount of coverage purchased ÷ coinsurance) × loss [$300,000 ÷ ($500,000 × 0.80)] × $150,000 = $112,500 − $500 deductible = $112,000
Which of the following statements concerning the characteristics of disability income insurance is (are) correct? I. A residual benefits clause preserves the purchasing power of the insured's disability income benefits. II. For a policy with a cost-of-living rider, an adjustment is made for each year of benefits paid to the insured and is calculated by using the same rate of change as that used by the Consumer Price Index. I only II only Both I and II Neither I nor II
The correct answer is (B). A residual benefits clause provides partial benefits to an insured when the insured returns to work in a lower paying job. A cost-of-living rider provides a cost-of-living adjustment to benefit payments based on increases in inflation; these riders are often calculated using the CPI.
Tara wants to fully understand insurance contracts before she buys one. She asks for an explanation of the legal characteristics of an insurance contract. All of the following statements are correct EXCEPT: a. An insurance contract is a contract of adhesion, that is, the insured accepts the contract as written. b. An insurance contract is aleatory in the sense that equal monetary values are exchanged. c. An insurance contract is unilateral, that is, only one party agrees to a legally enforceable promise. d. An insurance contract is conditional, that is, an insured must meet all conditions of the policy in order to claim payment
The correct answer is (B). All of the statements are correct regarding the characteristics of a contract except option (B). An aleatory contract has values exchanged that are unequal (small premium versus potential large claim).
Which of the following statements concerning the operation of a life insurance policy is correct? a. If the insured dies during the grace period, the insurer refunds only the premiums paid. b. If after the insured's death it is discovered that the insured's age had been misstated, the insurer will pay the beneficiary the amount that the premiums paid would have purchased at the insured's correct age. c. Generally, a policy can be reinstated after it has been surrendered for its cash value as long as evidence of insurability is provided to the insurer. d. Once a life insurance policy has been issued, it is incontestable on the basis of material misrepresentation or concealment
The correct answer is (B). If after the insured's death it is discovered that the insured's age had been misstated, the insurer will pay the beneficiary the amount that the premiums paid would have purchased at the insured's correct age. Option (A) is incorrect because if the insured dies during the grace period, full policy benefits are paid, but the insurer may deduct the overdue premium. Option (C) is incorrect because reinstatement applies to policies that have lapsed. Option (D) is incorrect because the insurer can contest the validity of a policy during the contestable period.
All of 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. Second-to-die policies may be helpful for couples expecting to owe estate taxes.
The correct answer is (B). Joint-life policies are usually some form of cash value insurance.
All of the following statements regarding a MEC are correct EXCEPT: a. A life insurance policy that fails the seven-pay test is deemed a MEC. b. Withdrawals from a MEC are subject to FIFO tax treatment. c. A 10 percent penalty applies to withdrawals taken from a MEC prior to the owner reaching age 59½. d. The primary issue with a MEC is the taxation of withdrawals (loans) because the death benefit is generally tax-free.
The correct answer is (B). MECs are subject to LIFO tax treatment.
Miguel, aged 33, is married and has a newborn daughter. Miguel is concerned about providing for his family in the event of his premature death. He is concerned about the long-term affordability of life insurance, but he is able to budget a fixed amount for a period of time. Which of the following policies would you recommend? a. An annually renewable term policy b. A level-premium term policy c. A whole life insurance policy d. A single-premium annuity
The correct answer is (B). Miguel should select a level-premium term policy since he is able to budget a fixed amount each year. An annually renewable term policy will become too expensive as he ages. The other policies are more expensive because of their savings component.
Which of the following life insurance policies contains a cash value savings component that reaches the face value of the policy at age 100 or 120? a. A term policy b. A whole life insurance policy c. A universal life insurance policy d. A lifetime annuity
The correct answer is (B). Owners of whole life insurance policies pay premiums until age 100 or 120, when the cash value equals the face value of the policy.
Today, many long-term care policies are treated as tax-qualified contracts. All of the following are true regarding tax-qualified long-term care contracts EXCEPT: Tax-qualified long-term care policies must provide benefits that are limited to long-term care services. These policies can be provided under an employer-sponsored cafeteria plan. These policies allow employers to provide this benefit and take a current income tax deduction, and the policies allow the employee to avoid income inclusion. The premiums for these policies may be deductible either above-the-line or below-the-line.
The correct answer is (B). These policies cannot be included in a cafeteria plan. All other statements are correct.
Eugene has been advised by his insurance agent to purchase a variable universal life insurance policy. He has sought your advice regarding this purchase. All of the following are characteristics of a variable universal policy EXCEPT: a. The policy features increasing or decreasing death benefits and flexibility of variable premium payments. b. The policy owner has exclusive investment control over the cash value of the policy. c. The death benefit is guaranteed to be equal to the face value. d. The cash value of a variable universal life policy is dependent on premiums and investment returns.
The correct answer is (C). All statements are true except option (C). The minimum death benefit of the variable universal life policy is guaranteed, but the death benefit can increase if the investment experience on cash value is good.
Members of a three-person partnership want to enter into a buy-sell arrangement. How many life insurance policies would need to be purchased to properly fund coverage of the partnership using a cross-purchase agreement? One policy Three policies Six policies Nine policies
The correct answer is (C). Each owner would need to purchase a life insurance policy on the other owners, and therefore a total of six policies would need to be purchased. 3 × (3 − 1) = 3 × 2 = 6
Jean is an engineer at SUR Enterprises. The firm does not offer disability policies to employees. Therefore Jean is considering purchasing a policy on his own. What percent of his salary will an insurance company typically offer as a benefit? No more than 1½ times his salary No more than 100 percent of his salary Approximately 60 percent of his salary No more than 33⅓ percent of his salary since he is covered under Social Security
The correct answer is (C). Generally, insurance companies will provide benefits of around 60 percent of a person's salary.
Nia, a technician, buys a disability policy with a base benefit of $6,000 and an SIS offset benefit of $1,200. Nia becomes disabled and eventually receives $1,000 in Social Security disability benefits. How much will she receive from the insurance company after Social Security benefits begin? $4,800 $6,000 $6,200 $7,200
The correct answer is (C). Initially, the policy will pay the sum of the base benefit and the SIS benefit, which equals $7,200. After Social Security begins paying, the insurance company will only pay $6,200. The total benefit is offset by the amount received from the SSA.
im earns $100,000 per year as a NASA engineer. He has a loss-of-income disability policy with a benefit of $5,000 per month. He suffers a disability to his right leg while at work. As a result of his injury, he needs to work at a desk job, earning $60,000. How much in disability benefits will he receive? $5,000 per month $40,000 per year $2,000 per month $0 since he is less than 50 percent disabled
The correct answer is (C). Kim is partially disabled, and he lost 40 percent of his income. Therefore, he will receive a benefit equal to 40 percent of his monthly disability policy benefit, or $2,000 per month.
Which one of the following statements concerning long-term care coverage is correct? Clients with a family history indicating longevity do not need to consider purchasing long-term care insurance. Wealthy individuals do not need long-term care since they can afford to pay for services themselves. Long-term care insurance can preserve a client's ability to choose care providers. Long-term care insurance is considered a medical insurance policy, and thus the premium is deductible for income tax purposes
The correct answer is (C). Maintaining coverage under a long-term care policy permits the insured a choice of providers. Option (A) is incorrect because the longer a person lives, the more likely it is that person will need long-term care insurance. Option (B) is incorrect because wealthy people with bequest motives may use long-term care as a hedge against LTC risk, permitting them to give more assets during life to their heirs. Option (D) is incorrect because only qualified long-term care contracts are deductible.
A client, aged 78, is confined to a nursing home. Which of the following programs is (are) likely to pay benefits toward the cost of the nursing home? I. Medicare may pay for up to 100 days of care after a 20-day deductible. II. Long-term care insurance may pay part of the nursing care costs if policy coverage of the facility type is broad enough. III. Private medical insurance may pay part if it is a comprehensive major medical policy. IV. Medicaid may pay if the client has income and assets below the relevant state threshold. A) I only B) I and III C) II and IV D) I, II, and III
The correct answer is (C). Medicare covers all of the costs for the first 20 days for a nursing home, therefore statement I is incorrect. There is a deductible from day 21 to day 100. Because statement I is incorrect, answers (B) and (D) are incorrect, even though statement III is correct. Statement IV is true, as is statement II, therefore option (C) is the correct answer.
Shira has a major medical policy with a $500 annual deductible, a $2,000 out-of-pocket limit on covered losses excluding the deductible, and an 80/20 coinsurance provision. Shira breaks a leg dancing and has surgery that costs $12,000. How much will she need to pay for the surgery? A. $500 B. $2,300 C. $2,500 D. $2,800
The correct answer is (C). Shira is responsible for a $500 annual deductible and 20 percent of the costs. However, she has an out-of-pocket limit of $2,000 excluding the deductible. $12,000 − $500 = $11,500 $11,500 × 0.20 = $2,300 $2,000 + $500 = $2,500
Which of the following is the highest level of care under the category of long-term care? Custodial care Intensive care Skilled-nursing care Advanced-nursing care
The correct answer is (C). Skilled-nursing care requires doctors or nurses to assist with the patient's care. Custodial care refers to help with activities of daily living. Intensive care refers to medical care provided in a hospital, and advanced-nursing care is not a recognized type of care.
What is the purpose of disability income insurance? To provide a one-time payment for the insured while he or she is injured or ill To provide regular income for the insured while the insured is working and when that person is unable to work due to illness or injury To provide a regular income while the insured is unable to work due to illness or injury To provide a one-time payment for the insured while the insured is working and when that person is unable to work due to illness or injury
The correct answer is (C). The purpose of disability income insurance is to provide a regular income while the insured is unable to work due to illness or injury.
Which of the following is correct regarding Social Security disability benefits? a. Social Security disability payments will likely provide an adequate income replacement. b. The Social Security definition to qualify for disability benefits is very liberal. c. Qualifying for Social Security disability benefits is a difficult process. d. Social Security should be viewed as a primary source of benefits for disability
The correct answer is (C). With regard to someone being classified for disability under Social Security, the SSA states, "The law defines disability as the inability to do any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months." In addition, there is a 5-month waiting period before benefits can begin. This definition is very strict, thus qualifying for disability through Social Security is a difficult process.
All of the following statements concerning disability income insurance are correct EXCEPT: a. Premiums for disability income insurance coverage are a function of the insured's health, biological sex, age, and the level of income benefits provided by the policy. b. To qualify for disability income, one must become totally disabled while the policy is in force and remain so until the elimination (exclusion) period has ended. c. A policy that integrates with Social Security will reduce payable benefits by the amount of Social Security the person with a disability is eligible to receive. d. The Social Security program requires the person who is disabled to wait at least one month before receiving benefit
The correct answer is (D). In order to receive disability benefits, a person must be disabled for 5 months, must be unable to perform the duties of any occupation, and must have a disability that is either expected to last for 12 months or to result in death.
Hanna, aged 59½, was employed full-time at AWY Corporation, but she was laid off during a recent downsizing. The company has 25 full-time employees and 10 part-time employees, but it does not offer group health insurance. What should Hanna do for health insurance while unemployed? a. Elect 18 months of COBRA coverage. b. Elect COBRA for up to 36 months or until she has group coverage with a new employer. c. Elect Medicare coverage. d. Purchase an individual major medical policy until she can obtain group coverage with a new employer.
The correct answer is (D). The employer is not required to offer COBRA because it does not have group health insurance. Hanna is not eligible for Medicare until age 65.
All of the following statements concerning variable life insurance are correct EXCEPT: a. Variable whole life is a type of whole life insurance that has a fixed premium, a fluctuating death benefit, and fluctuating cash values. b. Variable whole life policies must be regulated by the U.S. Securities and Exchange Commission (SEC). c. The owner of a variable universal life policy has the option to invest in a variety of investments. d. If the variable universal life policy investment experience is poor, the death benefit amount may be reduced to zero
The correct answer is (D). The policy will still have the face value benefit, even if the cash value has suffered from poor investment results.
We Are Builders, Inc., has just completed construction of the Hope Tower, a 350-floor skyscraper located in Parkfield, California that is now the world's largest building. This massive tower cost $50 billion to build, and its replacement cost is estimated at $65 billion. Given its location, there is always the possibility that an earthquake may cause damage to the tower. Zean Insurance Company is the primary property-casualty insurance company in California, and it is accustomed to dealing with the risk of earth movement. The company has a capital base of $45 billion and a net surplus of $4 billion. Zean has been asked to insure the Hope Tower. Which of the following statements concerning this situation is correct? a. Due to the possibility of earthquake damage, Zean should decline coverage for the Hope Tower. b. Given the notoriety of the tower and the likelihood of positive press for providing coverage, Zean should insure the Hope Tower. c. Zean has the financial capacity to issue the policy. d. Zean should insure the Hope Tower only if it can obtain reinsurance for part of the risk from other insurance companies, since a total loss could be catastrophic to Zean.
The correct answer is (D). When the risk exposure is so great that there is the possibility of a catastrophic loss, the risk should be undertaken only if appropriate reinsurance can be obtained. Option (A) is incorrect because the possibility of earthquake damage alone is not a sufficient reason to deny coverage. Options (B) and (C) are incorrect because Zean Insurance Company does not have the financial capacity to undertake this risk.
Xavier is the historical interpreter at his city's museum, which does not provide disability insurance. He buys a private policy through an insurance agent that provides a benefit of $4,200 a month. If he has a 25 percent effective tax rate and is disabled, what are his benefits after tax? $0 $1,050 $3,150 $4,200
The correct answer is (D). Xavier paid the entire premium, so the entire benefit is tax-free. He is effectively self-insuring.
