1. The answer is(A)by definition.
2. The answer is(D).(A) is incorrect because one or more people or entities may be named as either primary or contingent beneficiaries. (B) is incorrect because the contingent beneficiary receives nothing and all proceeds go the primary beneficiary when the insured dies, unless the primary beneficiary predeceases the insured or loses entitlement to the benefits for some other reason. (C) is incorrect because transfer taxes may be incurred when the estate is the beneficiary.
3. The answer is(A).(B) is incorrect because the amount of insurance under an increasing term policy increases while the amount needed to pay off the mortgage decreases. (C) is incorrect because the amount of insurance under a modified whole life policy remains constant while the amount needed to pay off the mortgage decreases. (D) is incorrect because the amount of insurance under a 10-year renewable term policy remains constant for 10 years while the amount needed to pay off the mortgage decreases.
4. The answer is(D). (A), (B), and (C) are incorrect because common reasons for disqualification under unemployment compensation programs include involvement in a labor dispute, voluntarily leaving a job without good cause, and discharge for misconduct.
5. The answer is(C).(A) is incorrect because hospital benefits are not subject to an annual deductible. However, there is a benefit period deductible, and it is much higher than $200. (B) is incorrect because benefits are paid in full for only the first 60 days in each benefit period, subject to the initial deductible. (D) is incorrect because Part A pays for hospital services in full for up to 60 days in each benefit period after the deductible has been met. It provides benefits for an additional 30 days subject to a daily patient copayment. There is also a lifetime reserve of 60 additional days, but once these days are used, they are not available for future benefit periods.
6. The answer is(B).(A) is incorrect because the insurer has the right to cancel a cancelable policy during the period for which premiums have been paid. (C) is incorrect because future rates are guaranteed in a noncancelable policy. (D) is incorrect because the insurer has a right to refuse to renew an optionally renewable policy.
7. The answer is(A).(B), (C), and (D) are incorrect because the law of large numbers states that as the number of independent events increases, the likelihood increases that the actual results will be close to the expected results.
8. The answer is(A). (B) and (C) are incorrect because benefits are specified by state workers' compensation law. (D) is incorrect because the policy's dollar limits apply only to employers liability coverage.
9. The answer is(C).The standard limit for Coverage D is 30 percent of the Coverage A limit. Prior to 2000, the limit was 20 percent. The limit for Coverage B (other structures) is 10 percent of the Coverage A limit, while the limit for Coverage C (personal property) is 50 percent of the Coverage A limit.
10. The answer is(D).Ken would collect $35,000 from the other party's liability insurer. His own policy would also pay the full $15,000 medical payment limit. There is no coverage for the remaining $50,000 because Ken does not have coverage forunderinsuredmotorists.
11. The answer is(C). (A) is incorrect because insurance is a unilateral contract. (B) is incorrect because payments under a contract of indemnity reflect the amount of the loss. (D) is incorrect because insurance is a personal contract.
12. The answer is(B).His employer's plan will pay $12,000. If William incurs $15,000 of covered medical expenses, he must pay $1,000 out-of-pocket to meet the deductible. Of
the remaining $14,000 of expenses, $8,000 of it is subject to the 75 percent coinsurance provision. This means that William must pay another $2,000 (.25 × $8,000 = $2,000) out-of-pocket for a total amount of $3,000 ($1,000 deductible + $2,000 coinsurance = $3,000). Subtracting $3,000 from $15,000 leaves $12,000 for the medical expense plan to cover.
13. The answer is(A).(B) is incorrect because people are more likely to pay a life insurance premium than they are to make a voluntary investment. (C) is incorrect because the life insurance industry has a solvency record unmatched by any other type of business organization. (D) is incorrect because increases in cash values are not subject to federal income taxes as they accrue, in contrast to the earnings in a separate investment program, which are often taxed as ordinary income.
14. The answer is(D).(A) and (B) are incorrect because the umbrella policy pays only after the limits of the PAP are exhausted because the PAP is primary. (C) is incorrect because the self-insured retention (SIR) does not come into play when there is an underlying policy paying for part of the loss.
15. The answer is(A).(B) is incorrect because ISO is not a credit bureau. (C) is incorrect because it describes MIB, Inc. (D) is incorrect because it describes the NAIC.
16. The answer is(B).(A) is incorrect because the doctrine, or principle, of indemnity refers to compensation that makes people whole following a loss.(C) is incorrect because the law of the jungle refers to unrestrained and ruthless competition. (D) is incorrect because the principle of adhesion deals with ambiguity in a contract.
17. The answer is(C).(A) is incorrect because providing a lump-sum cash refund to heirs is inconsistent with their goals. (B) is incorrect because providing an installment refund to heirs is inconsistent with their goals. (D) is incorrect because joint-life annuity payments would cease when either Sam or Janet dies, rather than providing an income as long as at least one of them is alive.
18. The answer is(B). (A), (C), and (D) are incorrect because the extension-of-benefits provision applies only to a covered employee or dependent who is totally disabled at the time of termination.
19. The answer is(A).Brad meets the criteria for being currently, fully, and disability insured.
20. The answer is(B).(A) is incorrect because key employee disability policies are designed to benefit the business that has lost the services of a key employee. (C) is incorrect because business overhead policies tend to be limited to benefit durations of 1 or 2 years. (D) is incorrect because either the business or the employee may be the beneficiary under a formal salary continuation plan.
21. The answer is(C). (A) is incorrect because settlement options are exercised when the insured dies. (B) is incorrect because the settlement option is a way of distributing the benefit, not of modifying its value. (D) is incorrect because settlement options are exercised after the insured dies, at which time no more premiums are payable.
22. The answer is(D).(A) is incorrect because employee contributions are tax deductible only for employees who itemize deductions and then only to the extent that expenses exceed 7.5 percent of the employee's adjusted gross income. (B) is incorrect because medical expense benefits are not taxable income to the employee unless they exceed any medical expenses incurred. (C) is incorrect because employer contributions do not create any tax liability for an employee.
23. The answer is(B). (A), (C), and (D) are incorrect because these inflation provisions are much less common.
24. The answer is(C).(A) is incorrect because prescription drug plans normally cover only those drugs that are required by either federal or state law to be dispensed by prescription. One frequent exception, however, is injectable insulin. (B) is incorrect because no coverage is provided for the charges to administer drugs. (D) is incorrect because a service approach is usually used to provide benefits. Prescriptions are filled upon receipt of a prescription, proper identification, and any required copayment.
25. The answer is(B).(A) is incorrect because an alien insurer is based in another country. (C) is incorrect because extraterritorial refers to out-of-state coverage, not an out-of-state insurer. (D) is incorrect because Ohm is licensed in Pennsylvania.
26. The answer is(D).(A) is incorrect because most comprehensive long-term care insurance policies have a single elimination period that can be met with a combination of days from when an insured is in a long-term care facility or receiving home health care services. (B) is incorrect because a tax-qualified policy can have an elimination period of any length of time, assuming it is acceptable under state law. The only 90-day requirement is that the insured be certified as being unable to perform the required number of ADLs for at least 90 days. (C) is incorrect because the elimination period only postpones the date until benefits start. Once they start, the maximum benefit period applies.
27. The answer is(D). (A) is incorrect because the auto loan/lease coverage endorsement would provide "gap" coverage in the event the actual cash value of an auto Daisy owns or leases is less than the amount she owes on the auto. (B) is incorrect because the coverage for damage to your auto (maximum limit of liability) endorsement provides stated amount coverage on an owned auto. (C) is incorrect because the miscellaneous type vehicle endorsement is used to cover motor homes, motorcycles, all-terrain vehicles, dune buggies, and golf carts.
28. The answer is(A). (B) is incorrect because insurance agents usually adjust only small, uncomplicated claims. (C) is incorrect because public adjusters represent the public, not insurers. (D) is incorrect because staff adjusters are employees of the insurer, and according to the question, Phantom has no employees in California.
29. The answer is(B).(A) is incorrect because it is the most liberal definition for the employee, since the inability to perform one major duty would constitute disability. (C) is incorrect because it is more liberal for the employee than (B) but not as liberal as (A) because the employee could perform several different occupations based on qualifications even if he or she could not perform one of the major duties of his or her own occupation. (D) is incorrect because it is very liberal for a period of 24 months before becoming less so but still more liberal than (B).
30. The answer is (B). If the amount of insurance is less than 80 percent of replacement cost, the insurer will pay the portion of the cost to repair or replace the damage that the limit of insurance bears to 80 percent of the
replacement cost at the time of loss. This is explained by the following formula:
31. The answer is(C).(A) is incorrect because with a use-and-file law, rates are filed within a specified time after they are first used, and they may be disapproved. (B) is incorrect because a file-and-use law permits immediate use of filed rates without affirmative approval, although the commissioner may disapprove rates within a certain time period. (D) is incorrect because open competition relies on competition, rather than regulation, to set rates.
32. The answer is(D).An entity that has not gained approval to place insurance business from a department of insurance in the jurisdiction where it or a producer wants to sell insurance is referred to an unauthorized entity.
33. The answer is(A).(B) is incorrect because retention is most suitable for risks with high loss frequency and low loss severity. (C) is incorrect because retention is most suitable for risks with low loss frequency and low loss severity. (D) is incorrect because avoidance is most suitable for risks with high loss frequency and high loss severity.
34. The answer is(C).(A) is incorrect because HO-2 is designed for owner-occupants of dwellings. (B) is incorrect because HO-4 is designed for tenants of residential property. (D) is incorrect because HO-8 is designed for owner-occupants of dwellings.
35. The answer is(C).(A), (B), and (D) are incorrect because current assumption whole life, variable life, and ordinary life have fixed premiums. Truly flexible premiums are a distinctive feature of universal life insurance.
36. The answer is(C).Under a comparative negligence law, Robert would have his judgment reduced by 20 percent, which is the degree of his fault.
37. The answer is(B). Under the usual COB provision, the plan of the parent with custody is primary, the plan of the stepparent who is the spouse of the parent with custody is secondary, and the plan of the parent without custody is tertiary.
38. The answer is(C). Both I and II are correct.
39. The answer is(B).I is incorrect because premiums tend to be higher in state high-risk pools despite state subsidies.
40. The answer is(A).II is incorrect because the standard length of a grace period is 30 or 31 days in fixed-premium policies and 60 or 61 days in flexible-premium policies, such as universal life insurance.
41. The answer is(D). I is incorrect because partial-disability benefits tend to encourage a return to work prior to total recovery. II is incorrect because they are payable only after a person receives total-disability benefits for a specified period of time.
42. The answer is(A).II is incorrect because individual medical expense policies lapse at the beginning of the grace period unless the premium is paid within the grace period.
43. The answer is(C). Both I and II are correct.
44. The answer is(A).II is incorrect because loss prevention is not a method of risk financing but a method of risk control, which typically involves reducing the probability or severity of loss.
45. The answer is(D).I is incorrect because in life insurance the offer must be made in a written application. II is incorrect because in life insurance acceptance is held by most courts to occur when the applicant meets the normal underwriting standards of the insurer, including a medical examination if required.
46. The answer is(B).I is incorrect because nonbusiness property insurance premiums are not tax deductible.
47. The answer is(C).Both I and II are correct because they allow a member to elect treatment outside the provider network.
48. The answer is(C). Both I and II are correct.
49. The answer is(D).I is incorrect because benefits under qualified long-term care insurance contracts are received tax free with the exception of those paid under per diem contracts that exceed a specified daily limit that is indexed for inflation. II is incorrect because premiums for long-term care insurance are deductible only up to specified limits. In addition, persons other than the self-employed can deduct medical expenses, including long-term care premiums, only to the extent the expenses exceed 7.5 percent of adjusted gross income.
50. The answer is(A). II is incorrect because insurance commissioners do not regulate banking activities.
51. The answer is(A).II is incorrect because punitive damages are designed to punish a claimant whose outrageous conduct contributed to a loss. Compensatory damages may include indemnification for pain and suffering. II is incorrect because punitive damages are designed to punish a claimant whose outrageous conduct contributed to a loss. Compensatory damages may include indemnification for pain and suffering.
52. The answer is(B).I is incorrect because account balances are carried over, and the size of an HSA balance carried over from prior years has no effect on a current year's contributions.
53. The answer is(C)Both I and II are correct because they are functions of a care coordinator.
54. The answer is(B).I is incorrect because an insured party must have an insurable interest at the time of the loss in covered property that has suffered a loss.
55. The answer is(B).I is incorrect because NAIC model legislation requires a 30-day free look.
56. The answer is(D). I is incorrect because the aggregate amount invested by
property-liability insurers is much smaller than the amount invested by life insurers. II is incorrect because liquidity is not a major consideration for most life insurers, since their investable funds will not need to be paid out until well into the future.
57. The answer is(C). Both I and II are correct.
58. The answer is(B).I is incorrect because there is no requirement that enrollees in Medicare Advantage plans must have a high-deductible medical expense policy.
59. The answer is(D).I is incorrect because treaty reinsurance is automatic and does not require a specific decision for each policy that is reinsured. II is incorrect because facultative reinsurance is optional and requires a specific decision for each policy that is reinsured.
60. The answer is(D).I is incorrect because the premiums purchase more accumulation units when stock prices are relatively low. II is incorrect because the value of each annuity unit decreases when stock prices are low, reducing the annuitant's dollar income.
61. The answer is(B).I is incorrect because the commission rates for renewal policies tend to be the same as for new policies.
62. The answer is(D). I is incorrect because mandatory second surgical opinions typically apply only to a specified list of procedures. II is incorrect because home health care benefits typically apply to a maximum number of visits per calendar year or to a period of time, such as 90 days after benefits commence.
63. The answer is(B).I is incorrect because the amount of capital needed to meet an income objective is found by dividing the amount of additional income needed by the applicable interest rate that represents the after-tax rate of investment return anticipated on the capital sum.I is incorrect because the amount of capital needed to meet an income objective is found by dividing the amount of additional income needed by the applicable interest rate that represents the after-tax rate of investment return anticipated on the capital sum.
64. The answer is(C). Both I and II are correct.
65. The answer is(A).II is incorrect because the beneficiary will be permitted to enforce the policy as though it complied with Texas law.
66. The answer is(D).I is incorrect because most people are more risk averse than they are risk tolerant. II is incorrect because the fact that a person is highly risk tolerant in physical or social activities does not necessarily mean that he or she is also highly risk tolerant in financial matters.
67. The answer is(A).II is incorrect because the wage base is adjusted annually.
68. The answer is(C). Both I and II are correct.
69. The answer is(C). Both I and II are correct.
70. The answer is(C).Underwriting involves both the selection and pricing of applicants.
71. The answer is(B).The reduced paid-up option produces a reduced death benefit for the life of the insured.
72. The answer is(A).FIMA administers the national flood insurance program, which provides coverages for dwellings and commercial buildings and their contents.
73. The answer is(C).Vulnerability to a hostile takeover is a disadvantage of demutualization.
74. The answer is(D).With paid-up additions, each dividend is used to purchase fully paid-up whole life insurance.
75. The answer is(B). D&O policies cover liability arising out of wrongful acts and exclude coverage for bodily injury and property damage, which should be covered under the firm's other policies.
76. The answer is(A).Medicaid provides benefits, which usually include nursing home care and home health care, to the "medically needy," and a person is not eligible unless he or she is either poor or has a low income and has exhausted most other assets.
77. The answer is(C).Although coverage for the Part A Medicare deductible is available