Risk Management & Insurance Planning Flashcards

A 'shared care' rider on a long-term care (LTC) insurance policy allows:

Answer: Spouses to draw from a combined benefit pool if one exhausts their own benefits

A shared care rider links two spouses' LTC policies so that if one spouse exhausts their individual benefit pool, they may draw from the other spouse's remaining benefits.

Which step comes FIRST in the risk management process?

Answer: Risk identification

Risk identification is always the first step—all potential loss exposures must be identified before they can be evaluated, prioritized, or treated.

Most long-term care insurance policies define benefit eligibility as the inability to perform at least how many Activities of Daily Living (ADLs)?

Answer: 2 of 6

Federal tax-qualified LTC policies require that the insured be unable to perform at least 2 of 6 ADLs (bathing, dressing, eating, toileting, transferring, continence) or have a cognitive impairment.

'Pure risk,' which insurance is designed to address, is characterized by:

Answer: Only the possibility of loss or no change—never gain

Pure risk involves outcomes of loss or no loss only, with no possibility of gain, making it the appropriate type of risk for insurance to cover.

An inflation protection rider on a long-term care policy is important primarily because:

Answer: It increases the daily benefit to keep pace with rising care costs over time

Without inflation protection, a fixed daily benefit purchased today may be insufficient to cover actual care costs 20–30 years in the future due to medical inflation.

Risk retention (self-insurance) is generally most appropriate for risks that are:

Answer: High frequency and low severity

Retaining high-frequency, low-severity risks is cost-effective because predictable small losses can be budgeted directly rather than paying insurance premiums plus profit margins.