FiCEP Insurance Planning 4 — Questions and Answers
Question 1: A client with a $500,000 whole life policy wants to stop paying premiums but keep some coverage. Which nonforfeiture option provides paid-up coverage for a reduced face amount?
- Extended term insurance
- Reduced paid-up insurance (Correct answer)
- Cash surrender value
- Automatic premium loan
Correct answer: Reduced paid-up insurance
Reduced paid-up insurance uses the cash value to purchase a smaller whole life policy requiring no further premiums.
Question 2: Which Medicare supplement (Medigap) plan is the only one that covers the Medicare Part B deductible for policies sold after January 1, 2020?
- Plan G (Correct answer)
- Plan F
- Plan N
- Plan C
Correct answer: Plan G
After January 1, 2020, Plans F and C were eliminated for new enrollees, making Plan G the most comprehensive available Medigap plan.
Question 3: A 45-year-old client is considering a variable annuity with a guaranteed minimum income benefit (GMIB). What is the PRIMARY risk this rider is designed to mitigate?
- Credit risk from the insurance company
- Longevity risk combined with poor market performance (Correct answer)
- Inflation eroding purchasing power
- Premium increases over time
Correct answer: Longevity risk combined with poor market performance
The GMIB guarantees a minimum income stream regardless of account performance, protecting against outliving assets in a down market.
Question 4: Under the concept of subrogation in insurance, after an insurer pays a claim, the insurer has the right to:
- Cancel the policyholder's coverage
- Increase the policyholder's premium retroactively
- Pursue a third party responsible for the loss (Correct answer)
- Require the policyholder to return the claim payment
Correct answer: Pursue a third party responsible for the loss
Subrogation allows the insurer to step into the insured's shoes and recover the paid claim amount from the negligent third party.
Question 5: Which disability income policy provision specifies that the insurer cannot cancel coverage or raise premiums as long as the insured pays premiums on time?
- Waiver of premium
- Guaranteed renewable
- Non-cancelable (Correct answer)
- Own-occupation definition
Correct answer: Non-cancelable
Non-cancelable policies lock in both the right to renew and the premium rate, offering the strongest consumer protection available.
Question 6: A client's homeowners policy has an 80% coinsurance requirement. The home is worth $300,000 but insured for only $180,000. A $90,000 partial loss occurs. How much will the insurer pay (ignoring deductibles)?
- $90,000
- $67,500 (Correct answer)
- $72,000
- $54,000
Correct answer: $67,500
The coinsurance formula: ($180,000 / $240,000 required) × $90,000 loss = 0.75 × $90,000 = $67,500.
Question 7: When evaluating a client's need for umbrella liability insurance, which factor is MOST important to consider?
- The client's age and health status
- Total assets that could be exposed in a lawsuit (Correct answer)
- The deductible on existing auto and home policies
- Whether the client owns term or whole life insurance
Correct answer: Total assets that could be exposed in a lawsuit
Umbrella insurance protects assets above underlying policy limits, so the primary consideration is how much wealth could be at risk in a judgment.
FiCEP Insurance Planning 4
A client with a $500,000 whole life policy wants to stop paying premiums but keep some coverage.
Which nonforfeiture option provides paid-up coverage for a reduced face amount?