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Life & Health Insurance 470 Exam #2, Chapters 11 - 18 Fall, 2005 Please select the best answer. 1. Which of the following statements about the characteristics of social insurance programs is true? (a) The amount of benefit is loosely related to a worker’s earnings. (b) Benefits are paid primarily on the basis of individual equity. (c) Participation in social insurance programs is voluntary. (d) Social insurance programs must be fully funded at all times to pay required benefits. 2. Cheryl, age 42, quit her job. Her employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Cheryl quit. She can avoid immediate taxation of these funds by (a) taking a lump-sum distribution. (b) using an IRA rollover account. (c) receiving the money through four equal installments. (d) using the funds to purchase common stock issued by the former employer. 3. Which of the following statements describes a defined-benefit pension plan? (a) The contribution rate is fixed, but the retirement benefit is not known in advance. (b) The contribution rate is fixed, and the retirement benefit is known in advance. (c) The contribution rate is variable, and the retirement benefit is not known in advance. (d) The contribution rate is variable, but the retirement benefit is known in advance. 4. Vesting refers to (a) the employer’s right to terminate contributions if a pension plan is adequately funded. (b) the employer’s right to recapture employee contributions to a pension plan if employment terminates prior to retirement. (c) the employee’s right to the employer’s contributions or benefits attributable to the contributions if employment terminates prior to retirement. (d) the employer’s right to discriminate against non-highly compensated employees when determining pension benefit levels. 5. The basic benefits provided by individual hospital expense insurance coverage include which of the following? I. Daily hospital benefits II. Miscellaneous hospital expenses, such as X-rays and lab tests (a) I only (b) II only (c) both I and II (d) neither I nor II 6. Which of the following statements about disability is (are) true? I. The economic loss to a family from the breadwinner’s long-term total and permanent disability is less than the economic loss from the bread-winner’s premature death. II. The probability of a working individual, age 25, being disabled at least 3 months before age 65 is less than 1 percent. (a) I only (b) II only (c) both I and II (d) neither I nor II 7. Brad purchased a major medical insurance policy. All of the following are typical characteristics of major medical insurance EXCEPT (a) first-dollar coverage. (b) broad coverage. (c) high maximum limits. (d) coinsurance. 8. Barb was injured in an auto accident. She was totally disabled and collected disability income benefits for 8 months. She would like to return to work on a part-time basis to see if her recovery is complete. During this period, her insurer will pay reduced disability income benefits. This type of disability is called (a) recurrent disability. (b) residual disability. (c) permanent disability. (d) partial disability. 9. One type of insurer is a community-oriented health insurer. In most states, this insurer is set-up as a non-profit organization that provides pre-paid hospital services and coverage for physicians’ and surgeons’ fees and other medical services. This type of insurer is called a(n) (a) fraternal insurer. (b) American Lloyd’s. (c) health maintenance organization (HMO). (d) Blue Cross/Blue Shield Plan. 10. Maria is covered under a group medical expense plan as an employee. She is also covered under her husband’s plan as a dependent. If Maria is hospitalized, how will each plan respond to her medical bills if both plans have the typical coordination-of-benefits provision? (a) Maria’s plan is primary, and her husband’s plan is excess. (b) Her husband’s plan is primary, and Maria’s plan is excess. (c) Her husband’s plan will pay its benefits, and Maria’s plan will deny coverage. (d) Both plans will pay benefits on a pro rata basis. Short Answer/Identify 11. Quarters of coverage (for social security) 12. 401(k) plan 13. Needs approach (in life insurance) 14. Accidental death and dismemberment insurance 15. ERISA 16. Usual, Customary and Reasonable in health insurance 17. Managed care (in health insurance) 18. Accidental results definition of disability 19. Cost of living adjustment rider in disability insurance. Essay, please answer any 3 of the following. 20. Describe disability income insurance; what benefits can typically be received and under what circumstances? Explain. 21. What is covered under each of the basic pieces of a health plan (hospitalization, regular medical, surgical, and major medical), and how do the pieces fit together? Explain. 22. What is ERISA, and why is it important? Explain. 23. What is the human life value approach in life insurance, and when might it be used? Explain. 24. What are the basic similarities and differences between a defined benefit and defined contribution plan? Explain.
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