FFC Insurance and Protection Planning 2 — Questions and Answers
Question 1: An umbrella liability insurance policy is best described as:
- A policy that replaces income during a disability
- Excess liability coverage above underlying auto and homeowners limits (Correct answer)
- A policy bundling life, health, and property coverage
- Coverage specifically for professional errors and omissions
Correct answer: Excess liability coverage above underlying auto and homeowners limits
An umbrella policy provides extra liability coverage above the limits of underlying auto, homeowners, or other policies, protecting against large judgments.
Question 2: Which of the following is a key tax advantage of a Health Savings Account (HSA)?
- Contributions are taxable but withdrawals for medical expenses are tax-free
- Contributions, growth, and qualified medical withdrawals are all tax-advantaged (Correct answer)
- Only employer contributions are tax-deductible
- Funds must be used within the calendar year or are forfeited
Correct answer: Contributions, growth, and qualified medical withdrawals are all tax-advantaged
HSAs offer a triple tax advantage: contributions are pre-tax, growth is tax-deferred, and withdrawals for qualified medical expenses are tax-free.
Question 3: What does COBRA allow a recently terminated employee to do?
- Apply for Medicare immediately regardless of age
- Continue their employer-sponsored health coverage for a limited period at their own expense (Correct answer)
- Convert their term life policy to permanent coverage
- Receive unemployment benefits for up to 26 weeks
Correct answer: Continue their employer-sponsored health coverage for a limited period at their own expense
COBRA (Consolidated Omnibus Budget Reconciliation Act) lets qualifying individuals continue group health coverage after losing employer-sponsored insurance, typically for up to 18 months.
Question 4: What is the primary difference between whole life and universal life insurance?
- Universal life only provides coverage until age 65
- Universal life offers flexible premiums and adjustable death benefits; whole life has fixed premiums and benefits (Correct answer)
- Whole life has no cash value; universal life does
- Universal life premiums are always lower than whole life premiums
Correct answer: Universal life offers flexible premiums and adjustable death benefits; whole life has fixed premiums and benefits
Universal life insurance allows policyholders to adjust premium payments and death benefits within limits, whereas whole life has fixed, guaranteed premiums and benefits.
Question 5: An annuity contract is primarily used to address which financial planning need?
- Providing a lump-sum death benefit to heirs
- Accumulating and distributing retirement income over a lifetime (Correct answer)
- Covering catastrophic property losses
- Funding a child's college education
Correct answer: Accumulating and distributing retirement income over a lifetime
Annuities are insurance contracts designed to accumulate funds and convert them into a stream of income, often for retirement purposes.
Question 6: Property and casualty (P&C) insurance primarily covers which of the following?
- Life insurance and disability income
- Damage to property and legal liability for accidents or injuries (Correct answer)
- Health care expenses and prescription drugs
- Long-term care and custodial services
Correct answer: Damage to property and legal liability for accidents or injuries
P&C insurance encompasses homeowners, renters, auto, and liability policies that protect against property damage and third-party liability claims.
Question 7: In insurance, 'subrogation' refers to the insurer's right to:
- Cancel a policy for non-payment of premiums
- Seek reimbursement from a responsible third party after paying a claim (Correct answer)
- Increase premiums at renewal without restriction
- Transfer policyholder obligations to another insurer
Correct answer: Seek reimbursement from a responsible third party after paying a claim
Subrogation allows an insurer that has paid a claim to step into the insured's shoes and pursue recovery from the at-fault party responsible for the loss.
FFC Insurance and Protection Planning 2
An umbrella liability insurance policy is best described as: