Risk Management and Insurance Flashcards
7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management and Insurance flashcards as text
Which of the following best describes the concept of 'adverse selection' in insurance markets?
Answer: High-risk individuals are more likely to seek insurance than low-risk individuals
Adverse selection occurs when people with higher-than-average risk are disproportionately drawn to purchase insurance, potentially destabilizing the risk pool.
A client wants long-term care insurance. Which benefit trigger is most commonly used by policies to determine when benefits begin?
Answer: Inability to perform 2 of 6 Activities of Daily Living (ADLs)
Most LTC policies begin paying benefits when the insured cannot perform at least 2 of 6 ADLs (bathing, dressing, eating, toileting, transferring, continence) or has cognitive impairment.
What is 'moral hazard' in the context of insurance?
Answer: The tendency for insured individuals to take on more risk because losses are covered
Moral hazard describes the behavioral change where insured individuals may take greater risks or be less careful because they know financial losses are covered by insurance.
Under the ACA, health plans must cover preventive services without cost-sharing if they receive an 'A' or 'B' rating from which body?
Answer: U.S. Preventive Services Task Force (USPSTF)
The ACA requires non-grandfathered plans to cover preventive services rated A or B by the USPSTF at no cost to the patient.
A client purchased a $250,000 20-year term life policy 10 years ago. They now want permanent coverage. Which conversion option is most common in term policies?
Answer: Convert to a whole life policy without new medical underwriting
Most term policies include a conversion provision allowing the policyholder to convert to a permanent policy without proving insurability, regardless of current health status.
Which factor does NOT directly affect a client's auto insurance premium under standard underwriting practices?
Answer: Color of the vehicle
Vehicle color does not affect auto insurance premiums; insurers consider factors like driving record, credit score, vehicle make/model, mileage, and location.
A client's life insurance policy has a 'waiver of premium' rider. What does this rider provide?
Answer: The insurer waives all future premiums if the insured becomes totally disabled
A waiver of premium rider keeps a life insurance policy in force without premium payments if the insured becomes totally disabled, typically after a 6-month waiting period.