Combined life and health insurance final exam

Which of the following policies offer first dollar coverage?

Basic Medical Plans

Times are tough and Joe has decided to cash in his 20 year old whole life policy. His cash surrender value is $14,354 and he has paid $19,876 in premiums since he started the policy. How much of the cash surrender value would be subject to tax?

$0 Explanation - If a policy owner decides to cash-in (surrender or cancel) a permanent policy, the cash value is not forfeited. The policy owner owns the cash value and can receive it as cash surrender value. If the cash surrender value exceeds the premiums paid, the excess is considered to be taxable income. If the cash surrender value is less than the total premiums paid, there is no taxable event.

Why should a policy owner be especially careful when deciding to increase the amount of an outstanding policy loan?

If the outstanding loan balance, plus interest, equals or exceeds the cash value of the policy, the company could cancel the insurance.

The extended term nonforfeiture option provides

paid-up term coverage equal to that of the original policy.

An annuity can be described as a contract that...

provides a lifetime income through periodic payments to the annuitant

When specified amounts for surgery are not scheduled and the insurer agrees to pay the prevailing rate in a certain area, the rate is called

usual, customary, and reasonable

An expense loading is added to the premium in order to do all of the following except... A.) cover all expenses and contingencies. B.) have funds for expenses when needed C.) concentrate costs among certain small groups of insured D.) spread cost equitably among insureds.

C. Explanation - An expense loading is added to the net premium in order to cover all expenses and contingencies, have funds for expenses when needed, and spread cost equitably among insureds.

With regard to life insurance policies, loading refers to:

assignment of the appropriate share of the company's operating expenses to each policy.

Lying about a material fact on an insurance application is considered..

basis for the insurance company to void the contract

A corridor deductible acts as a corridor between benefits under one type of health insurance plan and benefits under another medical insurance plan. This corridor deductible is a feature of which of the following plans?

Comprehensive Major Medical Plans

The main purpose of the spendthrift clause contained in a settlement option is to prevent the beneficiary from doing all of the following EXCEPT: A.) transferring the proceeds of the policy. B.) commuting the proceeds of the policy. C.) encumbering the proceeds of the policy. D.) spending any of the money for a designated period of time.

D Explanation- A spendthrift clause is designed to protect life policy proceeds from the beneficiary's creditors and spending habits as well as to prevent the beneficiary from transferring, commuting or encumbering the proceeds.