AFC Risk Management and Insurance 5

Question 1

Which of the following best describes the concept of 'adverse selection' in insurance markets?

Accepted Answer

High-risk individuals are more likely to seek insurance than low-risk individuals

Answer

Adverse selection occurs when people with higher-than-average risk are disproportionately drawn to purchase insurance, potentially destabilizing the risk pool.

Question 2

A client wants long-term care insurance. Which benefit trigger is most commonly used by policies to determine when benefits begin?

Accepted Answer

Inability to perform 2 of 6 Activities of Daily Living (ADLs)

Answer

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.

Question 3

What is 'moral hazard' in the context of insurance?

Accepted Answer

The tendency for insured individuals to take on more risk because losses are covered

Answer

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.

Question 4

Under the ACA, health plans must cover preventive services without cost-sharing if they receive an 'A' or 'B' rating from which body?

Accepted Answer

U.S. Preventive Services Task Force (USPSTF)

Answer

The ACA requires non-grandfathered plans to cover preventive services rated A or B by the USPSTF at no cost to the patient.

Question 5

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?

Accepted Answer

Convert to a whole life policy without new medical underwriting

Answer

Most term policies include a conversion provision allowing the policyholder to convert to a permanent policy without proving insurability, regardless of current health status.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Risk Management and Insurance 5