Risk Management and Insurance Midterm 2
-Existence of a legal duty to use reasonable care -Failure to perform that duty -Damage or injury to the claimant
Elements of Negligence
provide compensation for pain and suffering
General damages
pay benefits ranging from two yrs to age 65 waiting periods ranging from 3 to 6 months
Group long term plans
typically pay benefits for 13 weeks to 2 yrs, with 26 weeks being the most common duration of benefits Waiting periods are typically one to seven days
Group short term disability income plans
-tax exempt or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who is covered under a high deductible health insurance plan. -must be covered by a high deductible health plan -must not be eligible for Medicare benefits
Health saving account (HSA) Who is eligible to establish an HSA?
states that the insurer cannot contest the policy after it has been in force two years during the insured's lifetime
Incontestable clause
Julie purchased a life policy with these characteristic the policy was nonparticipating the maximum premium that the insurer could charge was stated in the policy, and the insurer is permitted to adjust the premium based on anticipated future experience. What type of life insurance did Julie purchase?
Indeterminate - premium whole life insurance
A group of cardiac rehabilitation patients exercise together at the local fitness club. All of these patients have had at least two heart attacks or coronary bypass surgery; and none have been able to purchase health insurance because of preexisting conditions. If these patients form a group to obtain group health insurance coverage, which group insurance underwriting principle would be violated?
Insurance incidental to the group
Income paid to an annuitant under a life annuity is comprised of all of the following except:
Insurer expenses
Lewis Company adjusts retirements benefits to consider SS retirements benefits. As SS slants benefits in favor of the less highly compensated workers, this adjustment reduces benefits for lower paid employees and increases benefits for the highly compensated employees. Because the Lewis Company plan makes this adjustment it can be described as?
Integrated
a person who is invited onto the premises for the benefit of the occupant
Invitee
is a person who enters the premises with the occupant's expressed or implied permission
Licensee
is the failure to exercise the standard of care required by law to protect others from an unreasonable risk of harm
Negligence
Which statement is true with regard to minimum vesting for qualified defined - benefit plans?
Neither
Which statement is true with regard to the options available in life insurance contracts? I.All life insurance policies provide dividend options II.All life insurance policies provide non-forfeiture options
Neither
a level-premium policy that accumulates cash values and provides lifetime protection to age 121
Ordinary life
Which statement is true with regard to yearly renewable term insurance?
Premiums increase at an increasing rate from year to year
All of the following statements about profit sharing plans are true except?
Profit sharing plans are exempt from the 10 percent penalty tax on early distribution
- Contributions may be fully deductible, partially deductible or not deductible. - In certain circumstances, withdrawals are permitted before age 59.5 without triggering withdrawal penalty tax.
Properties of traditional IRA
An insurance company was found guilty of illegal sales and claims practices and ordered to pay compensatory damages to a group of plaintiffs. To "make an example" of the insurers , the court also ordered the insurer to pay an additional $10 million to deter other insurers from engaging in the same wrongful acts. The $10 million awards is an example of:
Punitive damages
are designed to punish people and organizations so that others are deterred from committing the same wrongful act
Punitive damages
the thing speaks for itself" - the very fact that the injury or damage occurs establishes a presumption of negligence
Res Ipsa Loquitur
provide compensation for medical expenses
Special damages
All of the following are major characteristics of group universal life insurance EXCEPT
The policyowner chooses where the cash value is invested
All of the following are basic objectives of unemployment insurance plans except?
To reduce incentives for the unemployed to return to work
Which statement is true with regard to defense against liability claims
Under contributory negligence , if you contribute to your injury , you can't recover damages
a person who understands and recognizes the danger inherent in a particular activity cannot recover damages in the event of an injury
assumption of risk doctrine
is a hazardous condition that can attract and injure children
attractive nuisance
-Insurance incidental to the group -Flow of persons through the group -Automatic determination of benefits
basic underwriting principles used in group insurance
One tort reform proposal calls for modifying a rule under which a defendant cannot introduce evidence that shows the injured party has received other forms of compensation for the injury. This rule is called the
collateral source rule
the financial burden of the injury is shared by both parties according to their respective degrees of fault
comparative negligence law
Prior to passage of the workers compensation laws, employers could avoid liability to employees injured on the job by invoking common law defenses. Under one such defense , the employer's asserted that because the employee helped to bring about the injury, the employer was not responsible. This common law defense is
contributory negligence
Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To provide protection against this risk, she added a rider to her policy that allows her to purchase one year term insurance equal
cost of living rider
Bill purchased a nonparticipating life insurance policy. The cash value was based on the insurer's present mortality , expense and investment experience. His premium was guaranteed for an initial period and is redetermined after 3 years Bill purchased,
current assumption whole life insurance
the retirement benefit is known, but the contributions will vary depending on the amount needed to fund the desired benefit
defined-benefit plan
the contribution rate is fixed but the actual retirement benefit is variable
defined-contribution plan
a business that sells liquor can be held liable for damages that may result from the sale of liquor
dram shop law
the life insurance policy and attached application constitute the entire contract between the parties
entire-contract clause
Thomas wants to participate in the growth of the stock market through a deferred annuity. However he wants downside protection against the loss the principle and prior investment earnings if the annuity is held to term. Thomas should purchase a(n)
equity indexed annuity
allows workers with taxable compensation to make annual contributions to a retirement plan up to certain limits and receive favorable income-tax treatment
individual retirement account (IRA)
A property owner owes the highest degree of care to an
invitee
Investment income accumulates tax- deferred in qualified plans
is true with regard to qualified retirement plans
Adverse selection is reduced because the programs are compulsory
is true with regard to social insurance programs
states that a plaintiff who is endangered by his or her own
last clear chance rule
is a violation of a person's legal rights, or a failure to perform a legal duty owed to a certain person or to society as a whole
legal wrong
is a financial transaction by which a policyholder who no longer wants to keep a life insurance policy sells the policy to a third party for more than its cash value
life settlement
One form of life insurance has a reduced premium for the first 3-5 years with the premium increased after this initial period. This type of whole life insurance is called
modified life insurance
The difference between the face amount of a life insurance policy and the legal reserve of the policy is called the
net amount at risk
All of the following are costs associated with premature death of the breadwinner except
personal maintenance expenses of the decreased
An important consideration in determining the amount of life insurance to purchase is the need for income during the one or two year period after the death of the breadwinner, this period is called the
readjustment period
an employer can be held liable for the negligent acts of employees while they are acting on the employer's behalf
respondent superior
is a person who enters or remains on the owner's property without the owner's consent
trespasser
-Intentional, (fraud, assault) -Strict liability means that liability is imposed regardless of negligence or fault -Negligence
types of torts
is the sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups, who hope to profit by the insured's early death
viatical settlement
a motorist's negligence is imputed to the vehicle's owner
vicarious liability law
Ned purchased a life insurance policy on his own life. He was concerned that he might not be able to pay premiums if he became disabled. He added a provision to his policy that relieved him from paying premiums if he becomes totally disabled before a specified age. This provisions is called a
waiver of premium provision
All of the following are torts except
while robbing a bank , art shot and killed a bank employee.
Which $50,000 life insurance policy , if purchased at age 32 would have the highest cash value when the insured was 50 years old?
10 payment whole life insurance
Bailey Company started a qualified plan. Under the plan , Bailey provides an additional five percent of each employee's salary as a bonus , and each employee has the option of taking the bonus in cash or putting some or all of it aside for retirement. What type of plan did Bailey initiate
401 (k) plan
One type of retirement plan is designed for the employees of public schools and tax exempt organizations such as hospitals , non - profit groups and churches , These plans are called
403(b) plans
a technique for resolving a legal dispute using arbitration or mediation
Alternative dispute resolution (ADR)
- Protects the beneficiary if the insurer tries to deny payment of the claim years after the policy was first issued - The insurer has two years to detect fraud - The insurer can contest a claim after the incontestable period in limited circumstances
Benefits of incontestable clause
Which statement(s) is (are) true with regard to group insurance underwriting principles?
Benefits should be automatically determined (Only II)
I. Second-to- die insurance is often used in estate planning. II. Second-to-die life insurance costs less than purchasing two separate policies.
Both
compensate the victim for losses actually incurred
Compensatory damages
refers to the risk that an unauthorized party gains access to an organization's data
Cyber Liability
John was involved in an accident in a state that uses a pure comparative negligence rule. John was found to be 75 percent responsible for the accident and his actual damages were $20,000. How much will John be able to recover
5,000
changed the preexisting conditions under HIPAA
Affordable Care Act
Garrett purchased a life annuity. He selected a settlement option that will pay him less than a life income with no refund settlement option would have paid initially. However, under the settlement option he selected, the benefit that receives is periodically adjusted for changes consumer price index. The settlement option that Garrett selected is?
An inflation indexed annuity
To be eligible for unemployment benefits , an unemployed worker must meet all of the following eligibility requirements except?
Be unemployed because of voluntary termination
All of the following are characteristics of social insurance programs except?
Benefits emphasize individuals equity rather social adequacy.
I. Universal life allows the policyowner to vary premium payments II. Universal life allows the policyowners to earn a market based rate of interest on the cash value
Both
Swanson Enterprises gives each employee covered under the employee benefit plan 250 credits. With the credits, the employees can select which employee benefits they desire, and the magnitude of the benefits (up to certain limits). This type is called a:
Cafeteria Plan
All of the following are conditions under which negligence can be imputed to another party except
Collateral source rule
Tyndall Manufacturing covers employees under a basic medical expense plan supplemented with major medical insurance. Before the major medical insurance will begin to pay, the employee is required to pay a portion of covered medical expenses in excess of the limits of basic coverage. This type of deductible is called a(n):
Corridor deductible.
One insured status under OASDI requires at least six quarters of coverage out of the last 13 quarters ending with the quarter of death, disability or entitlement to old age benefits. This insured status is?
Currently insured
Rochelle is preparing to do her taxes. To determine what percentage of her individual annuity income was taxable and nontaxable. Rochelle divided her investment in the annuity by the total of the expected payments that she will receive through the annuity. This quotient is called the?
Exclusion ratio
Tom was just diagnosed with an inoperable brain tumor. According to his doctor, Tom has less than 3 months to live. A life insurance premium notice just arrived. Tom purchased his whole life policy over 40 years ago. Tom does not want to pay the premium. Which nonforfeiture option should Tom exercise?
Extended term insurance
All of the following are settlement options except?
Extended term insurance is a nonforfeiture option , not a settlement option.
All of the following are characteristics of group major medical expense EXCEPT
First-dollar coverage
Which of the following is commonly used to determine the employer's contribution under defined contribution plans?
Fixed percentage of salary
All of the following are dividends options except
Fixed period option
provides life insurance on a group of people in a single master contract
Group life insurance
A funding arrangement in which an insurer's guarantees the rate of interest for a number of years on a lump - sum deposit is called?
Guaranteed investment contract
is a tax-free distribution of cash or other property from one retirement plan, which is deposited into another retirement plan
IRA rollover
Some employers make a lump sum distribution of pension assets to workers who are terminating employment. To avoid receiving the account assets directly and having to pay taxes on the distribution , the funds may be deposited tax - free into a special account. Such an account is called an
IRA rollover account
Rod committed suicide four months after purchasing a $100,000 life insurance policy. His insurer must pay?
If the insured commits suicide during the suicide exclusion period, the insurer is only liable for a refund of premiums paid
All of the following are elements of a negligent act except
Inability of the tortfeasor to pay the damages
Payments end upon the death of the last annuitant
Is true with respect to a joint and survivor annuity?
Which statement is true with regard to the human life value approach
It crudely measures the economic value of a human life
Mom and Pop's Grocery is a sole proprietorship. Mom and Pop would like to establish a qualified plan to take advantage of the same tax advantages to which corporations are entitled. Mom and Pop should establish
Keogh ( HR-10) plan
Angie, age 62 purchased an immediate annuity. The annuity will provide monthly payments to Angie for as long as she lives. If Angie dies before receiving for 10 years, the balance of these payments will go to a beneficiary. Angie purchased an:
Life annuity will guarantee payments
Survivor benefits under the OASDI program most closely resembles which of the following private insurance coverages?
Life insurance
Which statement(s) is (are) true with regard to short-term disability income plans?
Most of these plans cover nonoccupational disability
the policyholder possesses all contractual rights in the policy while the insured is living
Ownership clause of life insurance
Jenning Inc just started a pension plan. The company has many long term employees who are within 10 years of retirement . Which of the following will help Jennings provide more adequate retirement benefits to these workers
Past service credits
Part B of the original Medicare Program covers?
Physician's fees and related medical services
One provision of the Health Insurance Portability and Accountability Act requires that when employees change jobs, the new employer must give credit for previous and continuous health insurance coverage. This provision is called:
Portability
Under one cost control measure used in dental insurance, if the estimated cost of dental treatment exceeds a specified value, a plan of treatment is submitted to the insurer. The insurer calculates the amount that will be covered under the plan. This information is then shared with the employee who decides whether to have the procedure performed. Such a provision is called a
Predetermination of benefits provision
Union Atlantic Railroad entered into an agreement with St. Joseph's Hospital. Under the agreement, St. Joseph's Hospital discounts services provided a Union Atlantic employees, and Union Atlantic provides a financial incentive to their employees to receive care from St. Joseph's. In this relationship. St. Joseph's Hospital is a(n):
Preferred provider organization.
Jenny needed surgery on her right knee , but the surgeon did an incision on her left knee What modification of the law of negligence will Jenny be able to invoke to recover from the surgeon
Res ipsa loquitur in action
All of the following benefits are available through workers compensation except
Retirement income
another type of IRA that provides substantial tax advantages
Roth IRA
Kathy would like to save for retirement. She selected a plan through which she can make a limited contribution each year. Her contribution is not tax deductible. However , the investment income accumulates income tax free, and qualified distribution from the plan are not taxed. Kathy funding a:
Roth Ira
In the past , federal , state and local government could not be sued unless they argued to the suit. Upon what doctrine was this freedom from ligation based
Sovereign immunity
Because of potential harm to individuals or society , some persons may be held liable for harm or injury to others even though negligence cannot be proven . These types of torts are called
Strict (absolute liability)
Group basic medical expense plans usually provide all of the following benefits EXCEPT
Supplemental major medical insurance
protection is temporary; protection expires at the end of the policy period, unless renewed; most are convertible and renewable for additional periods
Term life
Under Part A of Medicare , hospitals are reimbursed for inpatient services according to
The diagnosis related group reimbursement DRG
- It protects the beneficiary if the insurers attempt to deny payment of the death claim more than two years after the policy was purchased. - It allows the insurers to deny a death claim during the first two years of coverage on the basis of concealment or misrepresentation by the applicant.
The incontestable clause
Barb purchased a whole life policy on her son. Tom, twelve year ago. She named herself the beneficiary. Tom , now age 19 , would like to take out a policy loon to help fund the purchase of a sport car. Barb does not believe that Tom has the right to take out a policy loan. Which contractual provision support Barb's position?
The ownership clause
refers to the employee's right to the employer's contributions or benefits attributable to the contributions if employment terminates prior to retirement
Vesting
All of the following are legal defense to liability claims except
Vicarious liability
a cash-value policy that provides lifetime protection
Whole life
is a social insurance program that provides medical care, cash benefits, and rehabilitation services to workers who are injured or sick from job-related accidents or disease
Workers compensation
Which of the following $100,000 yearly renewable term policies would require the lowest premium?
YRT purchased by a woman age 30
Christine has paid up $50,000 whole life policy . She would like to transfer all ownership rights in the policy to her favorite charity. Christine can accomplish the transfer through a(n)
absolute assignment
Life annuities provide an income that the annuitant cannot outlive
property of an annuity
In addition to caring for their young children. Lyle and Lynn Thomas also support Lyle's father and Lynn's mother. This type of family is called a,
sandwiched family
All of the following are characteristic of variable life insurance except
the premium payments are flexible
The present value of the cumulative accrued pension benefits of highly compensated employees at JL Drug Company is 70 percent of the total of all accrued benefits. JL's plan therefore is described as :
top heavy
is a legal wrong for which the court allows a remedy in the form of money damages
tort
allows workers to take a tax deduction for part or all of their IRA contributions; can be converted to a Roth IRA
traditional IRA
