Reference no: EM131157631

Questions
1. Assume that you have limits of 15/25/15 ($15,000/$25,000/$15,000), the minimum required in the state where your car is garaged. If you are driving in a state that requires 25/50/20 ($25,000/$50,000/$20,000) and are involved in an accident, your insurer will interpret your policy as if it had the higher limits. Thus, even though you have to meet only the requirements where you live, your policy will provide the limits you need in any state or province in which you may be driving. Identify the provision in your automobile insurance policy that makes this possible.
a. Indemnification
b. Stacking
c. Out-of-state
d. Redlining
e. Gentrification

2. This Act of 1986 directs that employers of more than twenty employees who maintain a group medical plan must allow certain minimum provisions for continuation of benefit coverage. The Act's continuation provisions require that former employees, their spouses, divorced spouses, and dependent children be allowed to continue coverage at the individual's own expense upon the occurrence of a qualifying event. Identify this Act.
a. Consolidated Omnibus Budget Reconciliation Act
b. Health Insurance Portability and Accountability Act
c. American Recovery and Reinvestment Act
d. Public Company Accounting Reform and Investor Protection Act
e. Gramm Leach Bliley Act

3. This liability occurs in situations where the firm is liable for an independent contractor's negligence because the firm did not use reasonable care in selecting someone competent. Identify it.
a. Professional liability
b. Premises liability
c. Operations liability
d. Contingent liability
e. Nonownership liability

4. Which of the following types of annuities guarantees that the annuitant and/or beneficiary will receive, during the liquidation period, minimum payments equal to the single premium in an immediate annuity or the accumulation value in a deferred annuity?
a. Temporary annuity
b. Refund annuity
c. Joint annuity
d. Deferred annuity
e. Structured settlement annuity

5. Which of the following reasons can be attributed to the long-term financing gap faced by the Social Security and Medicare programs?
a. Increasing birth rates and health care costs
b. Pay-as-you-go system and declining birth rates
c. Traditional system and increased longevity
d. Increased birth rates and declining longevity
e. Increased morbidity and birth rates

6. If medical doctors fail to use reasonable care and diligence, and they fail to use their best judgment in exercising their skill and applying their knowledge, they are guilty of:
a. malpractice.
b. defamation.
c. vilification.
d. class-action.
e. nonownership.

7. Liability stemming from activities of the firm in installing equipment or doing other jobs for hire off its own premises is called:
a. professional liability.
b. premises liability.
c. completed operations liability.
d. contingent liability.
e. nonownership liability.

8. Flood insurance can be purchased through any licensed property or casualty insurance agent or from some direct writing insurers. Some insurers actually issue the flood insurance policies, in partnership with the federal government, as a service and convenience for their policyholders. In those instances, the insurer handles the premium billing and collection, policy issuance, and loss adjustment on behalf of the federal government. Identify these insurers.
a. Stock insurers
b. Write Your Own insurers
c. Mutual insurers
d. High network insurers
e. Subrogate insurers

9. Identify exclusion (f) in bodily injury and property damage liability in a commercial general liability policy.
a. Nonfortuitous liability
b. Contractually assumed liability
c. Liquor liability
d. Pollution liability
e. Workers' compensation liability

10. Identify the hazard that generally exists when a person can gain from the occurrence of a loss.
a. Causal hazard
b. Collective hazard
c. Physical hazard
d. Morale hazard
e. Moral hazard

11. In linear regression, if ‘X' is the year (Year 1, 2, 3... and so on), how would you calculate future claims?
a. Future claims = X + Slope + Intercept
b. Future claims = Slope + Intercept * X
c. Future claims = (Slope + Intercept)/X
d. Future claims = Intercept + Slope * X
e. Future claims = (Intercept + Slope) * X

12. This disability insurance policy provision coordinates benefits under different disability policies by providing for a reduction in benefit payments if the total amount of income payments under all insurance policies covering the loss exceeds earnings at the time disability commences, or exceeds the average earnings for two years preceding disability, whichever is greater. Identify this provision.
a. Coinsurance provision
b. Indemnity provision
c. Average earnings provision
d. stop-loss limit provision
e. coordination of benefits provision

13. Which of the following is covered by umbrella policies?
a. Personal injury liability
b. Obligations under workers' compensation
c. Owned or rented aircraft without underlying coverage
d. Property damage to any property in the care, custody, or control of the insured
e. Any act committed by or at the direction of the insured with intent to cause personal injury or property damage

14. In product liability, negligence actions against manufacturers surfaced once the _____ doctrine was removed.
a. assumption of risk
b. last clear chance
c. comparative negligence
d. attractive nuisance
e. privity

15. The linear regression model postulates that; Y = b + mX + e. In this equation, what does ‘m' stand for?
a. Y-intercept
b. Random variable with a mean of zero
c. Number of claims
d. Dollar amount per claim
e. Slope

16. If a person who receives payment from the insurer has the right to recover damages from another, the insurer has the right to:
a. gentrification.
b. subrogation.
c. redlining.
d. demutualization.
e. blockbusting.

17. During the liquidation or distribution period, annuity units are exchanged for:
a. dollar value of annuity.
b. preference shares.
c. stock options.
d. unit plans.
e. accumulation units.

18. If the employees do not have enough credits for a cafeteria plan, they can pay the additional cost through payroll deduction on a pretax basis using a(n):
a. core plus plan.
b. premium conversion plan.
c. modular cafeteria plan.
d. 401(k) plan.
e. contributory modular plan.

19. The health savings account can be part of a health maintenance organization, preferred provider organization, or indemnity plan, as long as it has a:
a. 100 percent reimbursement guarantee.
b. second surgical opinion provision.
c. stop-loss limit.
d. high deductible.
e. coordination of benefits provision.

20. _____ annuity is a special type of single premium immediate annuity issued by a life insurer and its terms are negotiated by the plaintiff, the defendant, and their attorneys.
a. Structured settlement
b. Accumulated
c. Surrender value
d. Unstructured resolution
e. Flexible resolution

21. The Social Security funding burden is being borne by a shrinking sector of society because:
a. mortality rates have increased and longevity has declined.
b. birth rates have increased and death rates have decreased.
c. longevity has increased and birth rates have declined.
d. mortality and birth rates have increased.
e. longevity has increased and morbidity rates have declined.

22. Homeowners policies exclude loss caused by flood due to the problem of adverse selection because:
a. only large insurers would be able to insure flood risk, creating unfair competition.
b. only those living in flood-prone areas would buy the coverage.
c. it encourages nonfortuitous events.
d. only stock insurers would insure flood risk.
e. only mutual insurers would insure flood risk.

23. Which of the following statements correctly differentiate between perils and hazards?
a. Perils refer to the number of losses during a specified period and hazards refer to the average dollar value of a loss per occurrence.
b. Both perils and hazards are causes of loss; perils are tangible, hazards are intangible.
c. Perils are causes of loss; hazards are conditions that increase perils.
d. Perils are diversifiable risks; hazards are nondiversifiable risks.
e. Perils are consequences of losses; hazards are cause of losses

24. The difference between the life expectancy and healthy adjusted life expectancy is a measure of the average equivalent number of years lost due to:
a. bad health and disability.
b. a bad economy.
c. bad health excluding disability.
d. death of a breadwinner in the family.
e. to disability excluding bad health.

25. Which of the following life insurances is usually offered as a supplement to a separate program of group term benefits?
a. Group yearly renewable
b. Group whole
c. Group variable
d. Group universal
e. Group limited-payment

26. The linear regression model postulates that; Y = b + mX + e. In this equation, ‘b' stands for:
a. the y-intercept.
b. A random variable with a mean of zero.
c. the number of claims.
d. the dollar amount per claim.
e. the slope.

27. Identify the coverage that fills in the coverage gap that arises when the negligent party meets the financial responsibility law of the state, but the auto accident victim has losses in excess of the negligent driver's liability limit.
a. Stacking coverage
b. Supplementary motorist coverage
c. Nonfortuitous coverage
d. Underinsured motorist coverage
e. Uninsured motorist coverage

28. In a population pyramid, a pyramid with a very large base would mean a large number of:
a. old people.
b. smokers.
c. young children.
d. working individuals.
e. females.

29. In addition to covering an insured's liability due to bodily injury or property damage, the insurer promises to defend against suits claiming such injuries. The insurer's obligation to defend against liability ends when:
a. the claims are filed after the retroactive date.
b. a number of exclusions are intended to standardize the risk and/or to limit duplicate coverage.
c. it has paid out its limits for any of the coverages in settlements or judgments.
d. the claims are filed after the extended reporting period.
e. the time lag between premium payments and loss payments is smaller.

30. These accounts allow employees to pay for specified benefits with before-tax dollars. In the absence of a these account, the employee would have purchased the same services with after-tax dollars. They can either add flexibility to a cafeteria plan or can accompany traditional benefit plans with little other employee choice. Identify these accounts.
a. Modular plus accounts
b. Premium conversion accounts
c. Core plus accounts
d. Modular conversion accounts
e. Flexibility spending accounts

31. Which of the following statements is true about cafeteria plans?
a. Modular cafeteria plans are more flexible than the core plus cafeteria plans.
b. Long-term care is included in cafeteria plans, while a 401(k) plan is excluded.
c. If there are not enough credits, the employee can pay the additional cost through payroll deduction on a pretax basis using a modular conversion plan.
d. The flexible spending account is part of a cafeteria plan.
e. A core plus cafeteria plan requires less administrative cost than a modular cafeteria plan.

32. If the commercial general liability policy is a(n) _____ policy, it will cover liability for events that take place within the policy period, regardless of when the plaintiff makes a claim.
a. actual cash
b. claims-made
c. extended replacement
d. occurrence
e. replacement

33. Which of the following is true about the age structure and the population pyramid of China?
a. It has a fully reversed age pyramid.
b. It has an age structure similar to that of a young, developing country.
c. It has experienced the natural evolutionary baby boom.
d. It has a rectangular-shaped population pyramid rather than an inverted pyramid.
e. It has an age structure similar to that of a mature, developed country.

34. This ISO's liability program, available to all ISO-participating insurance companies, was filed with state insurance regulators for approval effective April 1, 1998. It was the newest line introduced in more than twenty years. Because of an increase in the number of lawsuits filed for sexual harassment and similar liability suits, the coverage became imperative to most businesses. Identify this insurance coverage.
a. Employment practices liability program
b. Capital asset liability program
c. Professional liability program
d. Inland marine liability program
e. Business owners liability policy

35. Title I of this Act of 1996 protects employees who change jobs from having to start a new waiting period before a preexisting condition is covered. After the enactment of this Act, a person with diabetes could change jobs, and health insurance providers, without fear of losing coverage on that specific condition. Identify this Act.
a. Public Company Accounting Reform and Investor Protection Act
b. Sarbanes Oxley Act
c. Health Insurance Portability and Accountability Act
d. Consolidated Omnibus Budget Reconciliation Act
e. American Recovery and Reinvestment Act

36. You own an annuity plan that gives you the freedom to change the amount of contributions, stop contributions, and resume them at will. This plan is called:
a. single premium deferred annuity.
b. single premium immediate annuity.
c. flexible premium deferred annuity.
d. accumulation annuity.
e. variable premium annuity.

37. Carelessness or lack of concern can be categorized as a:
a. causal hazard.
b. collective hazard.
c. physical hazard.
d. morale hazard.
e. moral hazard.

38. The health savings account can be part of a health maintenance organization, preferred provider organization, or indemnity plan, as long as it has a:
a. 100 percent reimbursement guarantee.
b. second surgical opinion provision.
c. stop-loss limit.
d. high deductible.
e. coordination of benefits provision.

Final Examination -Case Study
KEN AND BARBARA JONES

PERSONAL INFORAMTION AND BACKGROUND

Ken Jones, 47 years old, and Barbara Jones, 44 years old, have been married for 19 years. They have two children, John and Joan Jones, ages 17 and 15 respectively. The Jones own two cars and a five-bedroom home located in Silver Spring, Maryland. Ken owns a financial advisory firm, Jones Wealth Management, and Barbara works as the vice president for Computer Technologies, a local computer consulting firm.

Ken Jones started Jones Wealth Management 12 years ago. He works as a financial planner and has four employees working for him. He owns the building where Jones Wealth Management is located.

Barbara Jones has been vice president of Computer Technologies for five years. Her previous employer, Advanced Technology Networks, took out and paid the premiums on a key person life insurance policy on Barbara. Advanced Technology Networks remains the owner and beneficiary of the policy on Barbara's life, but Barbara has the right to buy the policy for its cash value when she retires.

The Jones estimate that the cost to educate John and Joan Jones at state university will be $45,000 and $55, 000 respectively.

PROPERTY AND CASULATY INSURANCE INFORMAITON
Car
100/300/50 Liability limits
$10,000 Medical payment
$250 Comprehensive Deductible
$500 Collision Deductible
100/300 Uninsured Motorists
100/300 Underinsured Motorists
Ken is the principal driver

Truck
10/100/50 Liability Limits
$10,000 Medical Payments
50/100 Uninsured Motorists
50/100 Underinsured Motorists
Barbara is the principal driver

Home
Homeowner' Insurance (1)
HO-3 Policy Form $1,000 Deductible
$256,000 Dwelling
$25,600 Other Structures
$100,000 Liability
$1,000 Medical Payments
$2,000 Personal computer coverage on valued basis (2)

(1) The replacement cost is $370,000
(2) Depreciation on the computer equals $1,000

LIFE INSURANCE INFORMATION

Ken Jones
Ken Jones has a universal life policy that he bought 12 years ago when he started his business. The face value of his policy is $500,000. The policy currently has $61,000 cash value. Ken has paid $5,000 per year in annual premiums since the policy's inception. Barbara is the primary irrevocable beneficiary, and John and Joan are contingent beneficiaries. Ken also own a deferred annuity that will make payments for 10 years. Ken purchased this deferred annuity several years ago (3). The annuity is currently worth $50,000, and annual payments are expected to be $6,000 per year starting on Ken's 62nd birthday. Ken is also shopping for some additional life insurance so that money would be available to fund the college education ofr John and Joan if something were to happen to Ken.

(3) The annuity was purchases with a $35,000 lump-sum payment
Barbara Jones
Barbara owns a whole life policy that she bought eight years ago. The face value of her policy is $250,000. The policy currently, has $1,200 in dividends and $5,500 in cash value. Barbara has paid $1,000 per year in premiums since the policy's inception. Ken is the primary beneficiary of the policy. Barbara also participates in a split-dollar insurance plan for executives at Computer Technologies. The plan was set up five-years ago when Barbara joined the company. Barbara owns the policy, and Ken is the beneficiary.
 
HEALTH INSRUANCE POLICY INFORMATION
Ken Jones
Ken recently purchased an individual disability income policy that uses a split definition of disability. The policy has a 60-day elimination period and a benefit period of five-years. Ken is also interested in purchasing long-term care insurance and has recently priced some policies. He is also interested in purchasing a long-term care policy with the lowest possible premiums and a short waiting period.

Barbara Jones
Barbara carries major medical coverage for the entire family through Computer Technologies. The family calendar year deductible is $500, and the policy has an 80 percent so insurance provision. The coinsurance stop-loss provision limits the Jones' total out-of-pocket costs per calendar year to $5,000 plus any deductibles. Barbara has recently considered purchasing a disability income policy. Her primary concern is a reduction in her income due to total disability or a less-than-total disability and decreased work capacity. Her goal is to keep premiums relatively low.

39. Ken and Barbara were hosting a barbeque in their backyard, when the fire in the barbeque pit escalated out of control and caused $64,000 of fire damage to their house. The neighbor's house also suffered damages of $10,000. The neighbor collected from his own homeowner's insurance policy for damages to his house. His insurer then brought action against Ken and Barbara for repayment. The neighbor's insurance company demonstrated what principle?
A. Indemnity
B. Insurable interest
C. Adverse selection
D. Subrogation

40. Which of the following is a risk reduction technique that Ken could use to help lower his insurance premiums?
A. Increase the deductible on his auto insurance policy
B. Use hold-harmless agreements in leases.
C. Install a security system in his home.
D. Cover employee theft losses out of business income.

41. Which of the following would help Ken lower his homeowner's insurance premiums?
A. Changing his policy to an HO-5
B. Changing his dwelling coverage to broad from open-perils coverage
C. Changing his liability coverage limit to $200,000
D. Changing his personal property coverage to open-perils

42. Barbara was in the Jones' detached garage, starting the lawn mower, when the lawn mower caught fire and burned the garage. Damages to the garage totaled $10,000. What was the insurance company's payout to the Jones for the loss to the garage?
A. $9,000 under Coverage A
B. $9,000 under Coverage B
C. $7,649 under Coverage A
D. $7,649 under Coverage B

43. In December 2014, John Jones was driving the truck when he pulled into an intersection and hit another car. Two teenage girls were in the other car. One girl sustained injuries totaling $65,000, and the other girl sustained injuries totaling $23,000. The girls were driving a car that also sustained $12,000 in damages. John sustained injuries totaling $4,000, and damages to the truck totaled $3,000. What is the maximum that the insurance company could be required to pay out to the other parties in John's auto accident?
A. $99,500
B. $88,000
C. $85,000
D. $84,500

44. What was the insurance company's total payout to John for the December 2014 auto loss?
A. $0 because John was at fault
B. $4,000 under Liability coverage
C. $4,000 under Medical Payments coverage
D. $7,000 under Medical Payments and Liability coverages

45. In February 2014 Barbara was feeling ill and was admitted to the hospital. It was determined that she had appendicitis, and an appendectomy was performed. Barbara's hospital bill totaled $7,000, including $100 for books Barbara bought from the hospital gift shop. Next, in November 2014 Barbara caught pneumonia and was hospitalized for three weeks. Barbara's hospital bill totaled $22,000. During Barbara's hospital stay, how much out-of-pocket expenses were incurred for the. November 2014 claim?
A. $17,200
B. $4,800
C. $4,400
D. 3,720

46. Which of the following changes would help Ken lower his disability insurance premiums with the least effect on his coverage?
A. Changing his definition of disability to an own occupation definition
B. Changing his definition of disability to an any occupation definition
C. Changing his benefit period to 10-years
D. Changing his elimination period to 90-days

47. Which of the following long-term care policies would be most appropriate for Ken?
A. $100 daily benefit with a two-year benefit period and a 90-day elimination period
B. $250 daily benefit with a five-year benefit period and a 30-day elimination period
C. $100 daily benefit with a one-year benefit period and a 30-day elimination period
D. $150 daily benefit with a three-year benefit period and no elimination period

48. Which of the following is correct concerning Ken's current beneficiary designation on his life insurance policy?
A. If Barbara and the children are still living when Ken dies, the life insurance death benefit will be split evenly among them all.
B. If Barbara predeceases Ken, the children will receive the life insurance proceeds after Ken dies and must pay estate taxes on the proceeds.
C. Ken has the right to assign his policy to whomever he wishes without the consent of any of his beneficiaries
D. If John predeceases Ken, Barbara will receive the life insurance proceeds

49. If Barbara Jones dies next year, which of the following statements is correct?
A. The key person policy on her life is payable to Ken income -tax free.
B. Ken can buy the key person policy at Barbara's death for its cash value.
C. Advanced Technology Networks (her previous employer) can deduct the premiums on the key person policy up to the first $50,000 of coverage

D. Advanced Technology Networks will receive the proceeds of the key person policy income-tax-free but possibly subject to the corporate alternative minimum (ATM) tax.

50. If Ken surrenders his life insurance policy for its cash value, what would he report on his income tax?
A. $1,000 ordinary income
B. $1,000 capital gain
C. $3,500 ordinary income
D. $3,500 capital gain