Insurance Planning & Risk Management Flashcards

Under the NAIC definition, which of the following constitutes a 'material misrepresentation' that can allow an insurer to void a life insurance policy during the contestability period?

Answer: A false statement that increases the insurer's risk of loss and would have affected underwriting decisions

A material misrepresentation is one that is false, known to be false, and would have influenced the insurer's decision to issue the policy or the terms offered.

A 'retention' risk management technique is most appropriate when which of the following conditions exists?

Answer: Loss severity is low and frequency is low

Self-retention is most appropriate for low-severity, low-frequency losses where the financial impact is manageable and insurance costs would exceed expected losses.

Which provision in a health insurance policy requires the insured to pay a fixed dollar amount per covered service regardless of the total cost of that service?

Answer: Copayment

A copayment is a fixed dollar amount the insured pays per service (e.g., $30 per office visit), as opposed to a percentage-based coinsurance payment.

A client has a $500,000 whole life policy with $80,000 of accumulated cash value and a $60,000 policy loan outstanding. The client surrenders the policy. What is the net surrender value received?

Answer: $20,000

The net surrender value is the cash value minus any outstanding loans: $80,000 − $60,000 = $20,000.

Which Social Security disability standard requires the claimant to be unable to perform any substantial gainful activity due to a medically determinable impairment expected to last at least 12 months or result in death?

Answer: Social Security's strict 'any gainful activity' standard

Social Security Disability Insurance (SSDI) uses an 'any occupation' standard, requiring inability to perform any substantial gainful activity (SGA), which is a very strict definition.

A client's group health plan has a $3,000 annual deductible, 80/20 coinsurance, and a $7,000 out-of-pocket maximum. The client incurs $25,000 in covered medical expenses. What is the client's total out-of-pocket cost?

Answer: $7,000

The client pays the $3,000 deductible plus 20% of the remaining $22,000 ($4,400), but total out-of-pocket is capped at $7,000 by the out-of-pocket maximum.

Which of the following statements about a Variable Universal Life (VUL) policy is correct?

Answer: The policyholder assumes the investment risk in the separate account sub-accounts

In a VUL policy, the policyholder directs premiums into separate account sub-accounts and bears all investment risk; there is no guaranteed minimum cash value.