AFC Insurance & Risk Management Strategies 4

Question 1

A client owns a home-based business and assumes their homeowner's policy covers business equipment losses. What is the most accurate advice?

Accepted Answer

Homeowner's policies typically exclude or severely limit coverage for business property and liability.

Answer

Standard homeowner's policies exclude or cap coverage for business property and do not cover business liability, requiring a separate business owner's policy or endorsement.

Question 2

Which risk management technique involves a client setting aside a dedicated savings fund to cover potential future losses instead of purchasing insurance?

Accepted Answer

Risk retention through self-insurance

Answer

Self-insurance (a form of planned risk retention) means deliberately funding potential losses with reserved assets rather than transferring risk to an insurer.

Question 3

A 35-year-old client wants life insurance with the lowest initial premium and flexibility to convert later. Which policy type is most appropriate?

Accepted Answer

Annual renewable term with conversion privilege

Answer

Annual renewable term offers the lowest initial premium and, when it includes a conversion privilege, allows the client to convert to permanent insurance without proving insurability.

Question 4

Under the HIPAA portability rules, which situation best illustrates a qualifying life event that triggers a special enrollment period for health insurance?

Accepted Answer

Loss of employer-sponsored group health coverage due to job loss

Answer

Involuntary loss of qualifying group health coverage (e.g., job loss) is a HIPAA-recognized qualifying event that entitles the individual to a special enrollment period.

Question 5

A client's disability income policy pays benefits only when they cannot perform the duties of their own specific occupation. This is an example of which definition of disability?

Accepted Answer

Own-occupation definition

Answer

The own-occupation definition pays benefits if the insured cannot perform the duties of their specific occupation, regardless of their ability to work in another field.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Insurance & Risk Management Strategies 4