WMS Risk Management and Insurance Solutions 3

Question 1

A client's homeowner's insurance pays only the actual cash value for a destroyed roof rather than replacing it. This reduction reflects:

Accepted Answer

Depreciation

Answer

Actual cash value (ACV) equals replacement cost minus depreciation, so older property receives reduced claims payments.

Question 2

Which of the following best illustrates the concept of 'risk transfer' in personal financial planning?

Accepted Answer

Purchasing a life insurance policy

Answer

Purchasing insurance transfers the financial consequences of a risk from the individual to the insurance company.

Question 3

A variable life insurance policy differs from a whole life policy primarily because:

Accepted Answer

Cash value is invested in sub-accounts and varies with market performance

Answer

Variable life insurance directs the cash value into investment sub-accounts, meaning the account value fluctuates with market returns.

Question 4

The 'incontestability clause' in a life insurance policy means that after a specified period, the insurer:

Accepted Answer

Cannot deny a claim based on misrepresentation in the application

Answer

After the incontestability period (typically 2 years), insurers cannot void the policy or deny a claim due to misstatements on the original application.

Question 5

A client operates a medical practice. Which professional liability policy should the wealth manager recommend to protect against malpractice claims?

Accepted Answer

Medical malpractice insurance

Answer

Medical malpractice insurance covers physicians and healthcare providers against claims arising from professional negligence or treatment errors.

(WMS) Wealth Management Specialist Certification Practice Test

(WMS) Wealth Management Specialist Certification Practice Test

WMS Risk Management and Insurance Solutions 3