FINANCE quiz 2/3

Donna owns a house with a replacement cost of $500,000. She purchases $300,000 of insurance with a coinsurance requirement of 80% and a $500 deductible. If Donna's house is hit by a hurricane and she suffers a $150,000 loss, what will the insurer pay?

$112,000. (AMT Purchased ÷ coinsurance) x loss[$300,000÷($500,000 x 0.80)] x $150,000 = $112,500 - $500 deductible = $112,000.

The Watson family has a family medical policy that provides the following coverage for all four family members: • $1,000 per person deductible (4 person maximum). • $4,000 out-of-pocket limit per person. • 80/20 coinsurance provision. On a family trip, the Watsons were involved in a car accident when a deer ran into their car while they were driving 75mph. All four family members were hurt. Each person incurred medical expenses of $21,000. How much will the insurance company pay?

$68,000

Which of the following is a characteristic of guaranteed renewability? 1. The insurer guarantees to renew the policy to a stated age. 2. The policy is noncancelable and the premium may not be increased. 3. Renewal is solely at insurer's discretion. 4. The insurer has the right to increase the premium rates for the underlying class in which the insured is placed.

1 and 4

Which of the following statements regarding loss frequency is true? 1. Loss frequency is the expected number of losses that will occur within a given period. 2. Loss frequency is the potential size or damage of a loss.

1 only

Which of the following statements regarding loss severity is true? 1. Loss severity is the expected number of losses that will occur within a given period. 2. Loss severity is the potential size or damage of a loss.

2 only

Mr. Johns has a major medical insurance policy with a $1,000 deductible, an 80% coinsurance clause, and an out-of-pocket maximum of $4,000. He becomes ill and is admitted to the hospital for several days. When he is discharged, his hospital bill is $5,000, and his doctor bills are $2,500. What is the amount that his insurance co-pay will pay?

5,200

Which of the following is correct regarding a peril and hazard?

A peril is the proximate or actual cause of a loss.

The principle of indemnity requires that:

A person is entitled to compensation only to the extent that financial loss has been suffered

The risk that individuals of higher than average risk will seek out or purchase insurance policies is called?

Adverse Selection

Cate is an inquisitive person and wants an explanation of the legal characteristics of an insurance contract. All of the following statements are correct, EXCEPT:

An insurance contract is aleatory in the sense that equal monetary values are exchanged.

When must an insurable interest exist for a property insurance claim?

At the policy inception and time of loss.

When must an insurable interest exist for a life insurance claim?

At the policy inception only

Due to a recession, Pat has voluntarily changed her status from full-time to part-time with her employer. Prior to the change, she and her husband were covered under the company health plan. Which statement regarding COBRA is correct?

COBRA rules allow continuation of health coverage in this situation for up to 18 months

Medical insurance is commonly known as health insurance and can be purchased from private insurance companies. Which of the following best describes the classes of medical insurance?

Coverage for hospital expense, surgical expense, physician expense, and major medical expense

Joe walks into his insurance agent's office and notices his agent's name on a business card and the insurer's name on letterhead. If an agency agreement exists, what type of authority does Joe believe his agent has to enter into an insurance contract?

Implied Authority.

A subrogation clause means that:

Insured cannot indemnify himself from both the insurance company and a negligent third party for the same claim

What type of hazard results from the indifference that a person has to the potential loss because he or she has insurance?

Morale Hazard

Noncancelable health insurance contracts are different from guaranteed renewable contracts because:

Noncancelable policies cannot have a premium change

Jennifer is applying for life insurance, with her two children as the beneficiary. Jennifer has always been told she looks young for her age and although she is 58, she stated that she is 28 on her life insurance application. What would the insurer be most likely to do if Jennifer's beneficiaries attempt to collect on the life insurance policy?

Recalculate the face value of the policy based on actual premiums paid.

Insurance regulation is primarily conducted by?

The State Insurance Commissioner

Which of the following is not a requisite for an insurable risk?

The loss must not pose a catastrophic risk for the insured.

Which of the following statements regarding the characteristics of an insurance contract is false?

They are unilateral, meaning there is only one promise, which is a promise by the insured to pay the premium

Black Smith is an employee of ABC Corporation. He has just divorced Phyllis who was on all of his group health plan coverages. Phyllis wants to know to what COBRA coverage she is entitled. The following is a list of Black's group health plan benefits, all of which are integral parts of the plan. Which of Black's benefits is/are subject to COBRA rules? 1. Medical expense plan. 2. Dental plan. 3. Vision care plan. 4. Prescription care plan.

all of the above

COBRA coverage is available for which of the following persons? 1. A retiring employee. 2. An employee who is terminated. 3. Spouses and dependents of a deceased employee. 4. An employee no longer able to work due to disability.

all of the above

In which of the following events would COBRA rules apply for the benefit of the covered employee, employee's spouse, or dependent child? 1. The death of the covered employee. 2. The covered employee is fired for incompetence. 3. The employee changes status from full-time to part-time and, as a result, loses coverage. 4. The covered employee gets a divorce.

all of the above

When the insured is silent to a fact that is material to the risk being insured, what has occurred?

concealment