RFC Insurance Planning & Risk Management 3 — Questions and Answers
Question 1: Which type of Medicare supplement (Medigap) plan is the only one that covers the Medicare Part B deductible under plans sold after January 1, 2020?
- Plan F
- Plan G (Correct answer)
- Plan N
- Plan C
Correct answer: Plan G
After January 1, 2020, Plan F and Plan C were discontinued for new enrollees; Plan G is now the most comprehensive plan available, covering everything except the Part B deductible.
Question 2: A 'split-dollar' life insurance arrangement in a corporate setting most commonly involves which two parties sharing which component of a permanent policy?
- Employer and employee share the policy's cash value and death benefit (Correct answer)
- Employer and employee share the premium cost only
- Employee and beneficiary split the death benefit
- Employer and insurer split the premium and cash surrender value
Correct answer: Employer and employee share the policy's cash value and death benefit
Split-dollar plans typically involve the employer and employee sharing the premium payments, with each entitled to a portion of the cash value and death benefit.
Question 3: An RFC client wants liability coverage that sits above all underlying primary policies. Which type of policy provides this broad excess coverage?
- Umbrella liability policy (Correct answer)
- Excess liability policy
- Commercial general liability policy
- Professional liability policy
Correct answer: Umbrella liability policy
An umbrella policy provides broad excess liability coverage over underlying auto, homeowners, and other primary policies, often filling coverage gaps as well.
Question 4: When evaluating a client's risk management needs, which step in the risk management process immediately follows identifying and analyzing the risk exposures?
- Implement the chosen technique
- Select the appropriate risk management technique (Correct answer)
- Monitor and review the risk management program
- Measure the financial impact of potential losses
Correct answer: Select the appropriate risk management technique
After identifying and analyzing exposures (including measuring potential severity and frequency), the next step is selecting the appropriate technique (avoid, reduce, retain, or transfer).
Question 5: A client's disability policy has a 90-day elimination period. The insured becomes disabled on March 1. When would the first benefit payment most likely be received?
- March 31
- June 1
- July 1 (Correct answer)
- May 31
Correct answer: July 1
A 90-day elimination period means benefits begin after 90 days of disability (June 1), with the first payment typically issued at the end of that first benefit month (July 1).
Question 6: Which of the following best describes the 'incontestability clause' in a life insurance policy?
- The insurer cannot increase premiums after the policy is issued
- The insurer cannot cancel the policy after two years for any reason
- After two years the insurer cannot void the policy based on material misrepresentations in the application (Correct answer)
- The beneficiary cannot contest the insurer's claim decision after one year
Correct answer: After two years the insurer cannot void the policy based on material misrepresentations in the application
The incontestability clause prohibits the insurer from challenging the policy's validity due to application misrepresentations after the policy has been in force for two years.
Question 7: A key-person life insurance policy is owned and paid for by the corporation. When the insured key employee dies, how is the death benefit treated for tax purposes to the corporation?
- Fully taxable as ordinary income
- Deductible from corporate income
- Received income-tax-free under IRC Section 101(a) (Correct answer)
- Subject to the alternative minimum tax only
Correct answer: Received income-tax-free under IRC Section 101(a)
Life insurance death benefits paid to a corporate beneficiary are generally received income-tax-free under IRC Section 101(a), provided the COLI notice and consent rules are met.
RFC Insurance Planning & Risk Management 3
Which type of Medicare supplement (Medigap) plan is the only one that covers the Medicare Part B deductible under plans sold after January 1, 2020?