FiCEP Insurance Planning 2 — Questions and Answers
Question 1: What is the purpose of an insurance deductible and how does it affect premiums?
- Deductibles have no impact on premiums
- A deductible is the amount the insured pays before coverage begins; higher deductibles lower premiums (Correct answer)
- A deductible is paid by the insurance company
- Deductibles only apply to auto insurance
Correct answer: A deductible is the amount the insured pays before coverage begins; higher deductibles lower premiums
The deductible is the out-of-pocket amount before insurance coverage kicks in. Higher deductibles lower premium costs.
Higher deductibles reduce premiums because the insurer's expected payout is lower and small claims are eliminated. Counselors should help clients find the optimal deductible their emergency fund can support.
Question 2: A client has employer life insurance equal to one year's salary. Is this sufficient?
- Yes, employer coverage is always adequate
- Usually not; most experts recommend 10-12 times annual income (Correct answer)
- One year's salary is more than enough
- Life insurance is unnecessary with an employer
Correct answer: Usually not; most experts recommend 10-12 times annual income
One year's salary typically falls far short of family needs. Most guidelines recommend 10-12 times annual income.
For a worker earning $60,000 with a mortgage and two children, one year's salary would barely cover mortgage for two years. Counselors should recommend supplemental term life to close the coverage gap.
Question 3: What is an umbrella insurance policy and who should consider it?
- Insurance covering rain damage
- Extra liability coverage extending beyond home and auto policy limits, recommended for those with significant assets (Correct answer)
- A type of health insurance
- Insurance for businesses only
Correct answer: Extra liability coverage extending beyond home and auto policy limits, recommended for those with significant assets
An umbrella policy provides additional liability coverage above existing home and auto limits, protecting personal assets.
Umbrella policies typically cost $150-300/year for $1 million in coverage. Recommended for homeowners with pools or dogs, parents of teen drivers, landlords, and anyone with significant assets.
Question 4: What is the difference between copay, coinsurance, and out-of-pocket maximum?
- They all mean the same thing
- Copay is a fixed amount per visit; coinsurance is a percentage after deductible; out-of-pocket maximum caps total patient spending (Correct answer)
- These only apply to dental insurance
- Copay is paid by the insurer
Correct answer: Copay is a fixed amount per visit; coinsurance is a percentage after deductible; out-of-pocket maximum caps total patient spending
A copay is a fixed fee per service, coinsurance is a patient percentage after deductible, and out-of-pocket maximum is the yearly ceiling on cost-sharing.
A low-premium plan with high coinsurance and high out-of-pocket maximum may cost more in a year with significant healthcare needs. Counselors should help clients evaluate all three factors together.
Question 5: Why is long-term care insurance important and when should clients consider it?
- Only needed after age 80
- It covers nursing home and assisted living costs not covered by Medicare; consider it in your 50s (Correct answer)
- Medicare covers all long-term care
- It is too expensive to be practical
Correct answer: It covers nursing home and assisted living costs not covered by Medicare; consider it in your 50s
Long-term care insurance covers extended care not covered by Medicare. Purchasing in one's 50s provides more affordable premiums.
Average nursing home costs exceed $100,000/year. Medicare covers only short-term skilled nursing (up to 100 days). Medicaid requires spending down nearly all assets. Hybrid policies combining life insurance with LTC benefits have become popular.
Question 6: What should a counselor consider when evaluating a client's auto insurance?
- Only the monthly premium
- Liability limits, deductibles, uninsured motorist coverage, and whether vehicle value justifies comprehensive/collision (Correct answer)
- Auto insurance is standardized
- Only state minimum is needed
Correct answer: Liability limits, deductibles, uninsured motorist coverage, and whether vehicle value justifies comprehensive/collision
Auto insurance evaluation should consider liability limits, deductibles, uninsured motorist protection, and vehicle age and value.
Recommended minimum liability is 100/300/100. Consider dropping comprehensive and collision on vehicles worth less than 10 times the annual premium. Increasing deductibles from $250 to $1,000 can save 15-30%.
FiCEP Insurance Planning 2
What is the purpose of an insurance deductible and how does it affect premiums?