Deck 31: Insurance

Question 1

Pamela applies for a life insurance policy with Forever Young Insurance Company. When completing the application form about past surgeries, Pamela forgot about a past outpatient surgery when she had an infected hang-nail removed and her toe treated. One year after issuing the policy, Pamela died suddenly from a brain aneurysm. Forever Young denies payment under the policy based on misrepresentation. If Pamela's sister, Paula, sues Forever Young, she will most likely

A)win, because once an application has been accepted, an insurer may not use a misrepresentation on the application to avoid liability.
B)win, because Pamela's misrepresentation was not a material fact and did not increase Forever Young's risk in insuring Pamela's life.
C)lose, because Pamela's application contained a misrepresentation of material fact.
D)lose, because an insurer can always use any misrepresentation on an application to avoid paying.

Answer 1

B

Question 2

Liability policies, such as personal liability, professional malpractice, or business liability insurance, do NOT protect the insured against

A)a personal injury on the insured's property, such as the mail carrier who slips and falls on the owner's sidewalk.
B)intentional harm caused by the insured.
C)claims for property damaged by the insured.
D)someone injured by the insured away from home or business.

Answer 2

B

Question 3

Darcy buys a life insurance policy on her own life, under which she pays the annual premiums. The insurance is issued for a specific period, but is renewable for similar periods. Darcy is covered only as long as she makes the payments. There is no cash value portion to the policy. Darcy probably owns

A)whole life insurance.
B)key-person life insurance.
C)term life insurance.
D)an annuity.

Answer 3

C

Question 4

When Alberta pays her life insurance premium, a portion of the premium pays for insurance and the rest goes into savings. The company pays dividends on the savings. Alberta has a whole life insurance policy.

Question 5

Which type of automobile insurance covers the cost of damage caused by fire, theft, or vandalism?

A)liability insurance
B)comprehensive insurance
C)collision insurance
D)uninsured motorist insurance

Question 6

April purchased a life insurance policy on herself. On her death, the proceeds of the insurance were to be paid to her minor child, Ryan. Ryan is the beneficiary.

Question 7

The person who receives the proceeds from an insurance policy is the

A)owner.
B)testator.
C)insurer.
D)beneficiary.

Question 8

Jose and Juanita are first cousins. Jose lives in San Francisco, California; Juanita lives in Toronto, Canada. The two have met only once in life, and may never meet again. Nonetheless, because they are blood relatives, Juanita has an insurable interest in Jose's life.

Question 9

If an insurance company lies to a customer when selling him a policy, it has committed fraud.

Question 10

The person who issues the insurance policy and serves as guarantor is known as the owner.

Question 11

Victor purchased $1 million of insurance on his home even though the house was only worth $500,000. Victor's house was destroyed by lightning. Under the insurance policy, Victor will be able to recover $1 million.

Question 12

A person always has an insurable interest in his or her own life and the life of his or her spouse or fiancee, but not in parents or children.

Question 13

Traditional health insurance plans are

A)managed care plans.
B)value-based plans.
C)pay for service plans.
D)HMO plans.

Question 14

Which of the following insurance policies continues for a stated period of time with the premiums increasing with the age of the insured?

A)double indemnity
B)term insurance
C)annuity contract
D)comprehensive insurance

Question 15

A short document acknowledging receipt of an application and premium for an insurance policy is called a(n)

A)codicil.
B)binder.
C)power of attorney.
D)proxy.

Question 16

Life insurance is really liability insurance.

Question 17

When Sue bought a new car, she stopped by the insurance company and completed an application and made a payment. The agent accepted the offer orally. If Sue has an accident on the way home, she is covered by the new policy.

Question 18

In purchasing life insurance, Kelsey concealed the fact that she has a muscular disease. The insurance company can void the policy if the muscular disease is found to be a material fact.

Question 19

The cheapest life insurance option is

A)straight life insurance.
B)whole life insurance.
C)casualty insurance.
D)term insurance.

Question 20

Bonnie's insurance policy allows her to adjust the premiums over the life of the policy and adjust the allocation of the premiums between insurance and savings. What kind of policy does Bonnie have?

A)whole life insurance
B)term life insurance
C)universal life insurance
D)an annuity

Question 21

An insurance contract is not valid unless the owner has an insurable interest in the subject matter of the policy. Describe the rules on insurable interest.

Question 22

An insurance policy must meet all the common law requirements for a contract. Explain what this includes.

Question 23

Insurance policies often contain a covenant of good faith and fair dealing. Even if the clause is not in the policy, often courts will imply it. Explain the covenant of good faith and fair dealing and provide an example illustrating when an insurance company might breach this covenant.

Question 24

Everyone should have disability insurance to replace ________ of their income.

A)25-50%
B)40-60%
C)60-75%
D)90-100%

Question 25

Which type of health insurance plan is based on patient outcomes?

A)pay for service
B)managed care
C)value-based care
D)health maintenance