Principles of Insurance Quiz #5

Dirk required surgery for a kidney impairment. His total bill for medical services was $50,000. Dirk has a medical expense policy with a $1,000 calendar-year deductible and a $5,000 annual out-of-pocket limit. His coinsurance percentage is 20 percent. The out-of-pocket limit applies to coinsurance only. Assuming this surgery and hospitalization were the first medical care that Dirk received during the year and that all of the hospital services were eligible for coverage under the policy, how much of the $50,000 bill will the insurer pay? A) $39,000 B) $39,200 C) $40,000 D) $44,000

$44,000

Lynn works for a state university. In addition to the university's regular retirement plan, Lynn participates in another retirement savings plan. She elected to have $5,000 of her salary withheld and contributed to a tax-sheltered annuity with an insurer. The type of plan that Lynn established is called a A) SIMPLE plan. B) 403(b) plan. C) defined benefit plan. D) Keogh plan.

403(B)plan

Which of the following statements about group insurance underwriting principles is true? A) Employees should be required to remit premiums directly to the insurance company. B) The average age of the group should ideally increase over time. C) A group should be formed for the specific purpose of obtaining insurance. D) A flow of people through the group is desirable.

A flow of people through the group is desirable

Which of the following statements about pension funding agencies and funding instruments is true? A) Under a trust-fund plan, individual annuities are purchased each year for employees participating in the plan. B) A separate investment account is a group pension account with a life insurance company. C) If the funding instrument is a commercial bank, the plan is called an insured plan. D) Under a guaranteed investment contract, the insurer guarantees the principal of a lump sum deposit but does not guarantee the interest rate.

A separate investment account is a group pension account with a life insurance company

All of the following are typical characteristics of individual medical expense coverage EXCEPT A) annual benefit limits. B) essential health benefits. C) deductibles. D) coinsurance

Annual benefit limit

Which of the following statements about group long-term disability income plans is true? A) The definition of disability becomes less restrictive after a worker has been disabled for 2 years. B) Coverage is provided for both occupational and nonoccupational disabilities. C) Benefits are increased if a worker is eligible for Social Security or workers compensation benefits. D) Maximum monthly benefits under long-term disability income plans are significantly lower than the benefits paid under short-term disability income plans.

Coverage is provided for both occupational and nonoccupational disabilities

All of the following statements about the tax treatment of Health Savings Accounts (HSAs) are true EXCEPT A) Contributions to a qualified HSA are tax deductible. B) Distributions from a qualified HSA used to fund medical expenses are taxable income. C) Investment income in a qualified HSA accumulates income tax free. D) Distributions from a qualified HSA prior to age 65 for nonmedical purposes are subject to a 10 percent penalty tax.

Distributions from a qualified HSA used to fund medical expenses are taxable income

The period of time during which an employee can sign up for group insurance coverage without furnishing evidence of insurability is called a(n) A) probationary period. B) noninsurability window. C) waiting period. D) eligibility period.

Eligibility period

The Affordable Care Act requires all new medical expense plans to provide a comprehensive set of coverages and services. This comprehensive set of coverages and services that must be provided are called A) essential health benefits. B) dread disease benefits. C) long-term care benefits. D) respite care benefits.

Essential health benefits

All of the following statements about HMOs are true EXCEPT A) They organize and deliver health care services. B) HMOs place a heavy emphasis on controlling the cost of covered services. C) HMO members pay nothing for medical care until care is provided, then they must pay high deductibles and large coinsurance payments. D) The selection of physicians is usually limited to physicians affiliated with the HMO.

HMO memebers pay nothing for medical care until care is provided, then they must pay high deductibles and large coinsurance payments

One provision of the Affordable Care Act provides creates in each state a transparent and competitive insurance marketplace where individuals and small firms can purchase affordable and qualified health coverage. This marketplace is called a A) Medicaid plan. B) Medicare plan. C) Health Maintenance Organization (HMO). D) Health Insurance Marketplace.

Health Insurance Marketplace

Which of the following statements about tax-deferred retirement plans in the United States is true? I. Women, on average, receive lower employment-based retirement income than men. II. One way to hedge against inflation is to invest lump-sum pension distributions in fixed-income investments.

I only

Which of the following statements regarding health care expenditures in the United States is (are) true? I. As a nation, the United States spends significantly more per-person on health care than most other industrialized nations. II. Health care expenditures in the United States are high because everyone is covered by a health insurance plan

I only

Which of the following statements about disability and disability income insurance is (are) true? I. Most disability income policies replace 100 percent of gross earnings. II. The probability of being disabled before age 65 is much higher than commonly believed.

II only

Which of the following statements about individual disability income policies that use a two-part definition of total disability is (are) true? I. During the initial period of disability, the insured must be unable to perform the duties of any gainful occupation. II. After the initial period of disability, the insured must be unable to perform the duties of any occupation for which he or she is reasonably fitted by education, training, and experience.

II only

Under older group medical expense plans, physicians were paid a fee for each covered service and were reimbursed on the basis of reasonable and customary charges, up to a maximum limit. These older group medical expense plans were called A) service medical plans. B) managed care plans. C) point-of-service plans. D) indemnity plans.

Idemnity plans

Which of the following statements is true regarding disability income insurance? -Increasing the elimination period reduces the premium for disability income insurance. -The purchase of disability income insurance is not necessary if you are covered under workers compensation. -A uniform definition of disability appears in all disability income policies. -Disability income insurance usually replaces 100 percent of lost income.

Increasing the elimination period reduces the premium for disability income insurance.

Barb was injured in an auto accident. She was totally disabled and collected disability income benefits for 8 months. She would like to return to work on a part-time basis to see if her recovery is complete. During this period, her insurer will pay reduced disability income benefits. This type of disability is called A) recurrent disability. B) presumptive disability. C) permanent disability. D) partial disability.

Partial disability

Prior to passage of the Affordable Care Act, insurance policies typically contained a provision excluding coverage for impairments that were present or were treated during a specified period prior to the effective date of the policy. This provision is a(n) A) time limit on certain defenses. B) preexisting-conditions clause. C) benefit period provision. D) incontestable clause.

Preexisting-conditions clause

Connors Company self-funds the medical expense benefits that it provides to its employees. Connors Company has a contract with a commercial health insurance company providing that the health insurance company will pay all claims in excess of $250,000. The arrangement with the health insurance company is called A) reinsurance. B) managed care. C) stop-loss insurance. D) coinsurance.

Stop-loss insurance

All of the following are historical reasons for the increase in health care expenditures in the U.S. EXCEPT A) cost insulation because of third-party payers. B) employer-sponsored health insurance. C) universal health insurance coverage. D) technological advances in health care.

Universal health insurance coverage

Which of the following statements concerning defined contribution pension plans is (are) true? I. The contribution rate is fixed. II. The retirement benefit varies.

both I and II

A key feature of group medical expense plans is the employee being required to pay a percentage of covered expenses in excess of the deductible. This feature is A) other insurance. B) coinsurance. C) pro-rated insurance. D) reinsurance.

coinsurance

The effect of an annual out-of-pocket limit in an individual medical expense policy is to A) limit the lifetime benefits payable under the policy. B) put a cap on annual benefits the insurer will pay. C) prevent the insured from receiving duplicate benefits if medical expenses are also covered under workers compensation insurance. D) cover 100 percent of eligible medical expenses after an insured has incurred a specified amount of annual out-of-pocket expenses.

cover 100 percent of eligible medical expenses after an insured has incurred a specified amount of annual out-of-pocket expenses.

High deductible group health insurance plans have all of the following characteristics EXCEPT A) health savings accounts or health reimbursement arrangements. B) high dollar deductibles. C) low coverage limits. D) coinsurance.

low coverage limits

Which of the following statements about trust fund plans is (are) true? I. The trustee typically purchases annuities for retiring employees. II. The trustee guarantees the adequacy of the fund to pay the promised benefits.

neither I nor II

Individual medical expense insurance sold in the Health Insurance Marketplace is characterized by which of the following? -no exclusions -narrow range of benefits -first-dollar coverage -no lifetime benefit limits

no lifetime benefit limits

Beth's disability income insurance policy provides benefits for accidental death, dismemberment, and loss of sight. The maximum amount payable under this benefit is known as the principal sum. cash value. monthly benefit. face value.

principal sum

Advantages of cafeteria plans include all of the following EXCEPT A) simplicity of benefit administration. B) employees can select benefits that best match their needs. C) reduced taxes for employees. D) greater employer control over increasing benefit costs.

simplicity of benefit administration

All of the following are potential disadvantages to employees covered by a money-purchase pension plan EXCEPT A) The contribution rate by the employer is uncertain. B) The retirement benefit can only be estimated in advance of retirement. C) The benefit formula may produce an inadequate benefit if an employee enters the plan at an older age. D) The investment losses are borne by the employees.

the contribution rate by the employer is uncertain