Insurance Chapter 1 & 2 Flashcards

Questions and Answers

In forming an insurance contract, when does acceptance usually occur?

When an insurer approves a prepaid application.

Because an insurance policy is a legal contract, it must conform to the state contracts which require all of the following elements except?

Acceptance

Conditions (correct)

Consideration

Offer

In insurance, an offer is usually made when?

The application is submitted.

Under the conditions, a contract between an insurer and prospective insured can be legal if the applicant has been convicted of a felony.

False Signup and view all the answers

Which of the following is not an essential element of an insurance contract?

Counteroffer Signup and view all the answers

In terms of parties to a contract, which of the following does not describe a competent party?

Must have completed secondary education Signup and view all the answers

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. What term best describes what the insurer has violated?

Consideration Signup and view all the answers

Which of the following is not consideration on the part of an insured?

Promise to submit timely claims Signup and view all the answers

When an insured makes truthful statements on the application for the insurance and pays the required premium, it is known as which of the following?

Consideration Signup and view all the answers

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Conditional Signup and view all the answers

What best describes MIB?

It is a nonprofit organization that maintains underwriting information on applicants for life and health insurance. Signup and view all the answers

What are the members of the Medical Information Bureau required to report?

Adverse medical information about individuals. Signup and view all the answers

An agent makes a mistake on the application and then corrects his mistakes by physically entering the necessary information. Who must then initial the change?

The applicant Signup and view all the answers

An agent is in the process of replacing the insured's current health insurance policy with a new one. Which of the following would be a proper action?

The old policy should stay in force until the new policy is issued. Signup and view all the answers

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or the reporting agency have to comply?

5 days Signup and view all the answers

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral contract Signup and view all the answers

Which of the following is true regarding underwriting for a person with HIV?

True Signup and view all the answers

Which of the following reports will provide the underwriter with the information about a consumer's credit?

A consumer report Signup and view all the answers

Alison wants to buy a health insurance policy. She returns her completed application to her agent, along with a check for the first premium. She receives a conditional receipt two weeks later. Which of the following has the insurer done by this point?

Neither approved the application nor issued the policy Signup and view all the answers

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit is denied?

Material misrepresentation Signup and view all the answers

Which of the following is not the consideration in a policy?

Application given to a prospective insured Signup and view all the answers

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company. Signup and view all the answers

When delivering a policy, which of the following is an agent's responsibility?

Collect payment at the time of delivery. Signup and view all the answers

Underwriting is a major consideration when an insured wishes to replace her current policy for all of the following except?

Premiums always stay the same Signup and view all the answers

Whose responsibility is it to determine if all the questions on the application have been answered?

The agent Signup and view all the answers

Which of the following includes information regarding a person's credit, character, reputation, and habits?

Consumer report Signup and view all the answers

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?

3 days Signup and view all the answers

If an applicant does not receive his or her policy, who would be held responsible?

The agent Signup and view all the answers

The following would provide an underwriter with information concerning an applicant's health history?

The Medical Information Bureau Signup and view all the answers

Which of the following entities can legally bind coverage?

Insurer Signup and view all the answers

Which of the following is not true of a major medical health insurance policy?

True Signup and view all the answers

Each point represents $10.00, which means that $2,000 of his surgery will be covered by his insurance plan. What system is Todd's insurance company using?

Relative value Signup and view all the answers

In basic expense policy, after the limits of the basic policy are exhausted, the insured must pay what kind of deductible?

Corridor Signup and view all the answers

If an insured is not required to pay a deductible, what kind of coverage does he/she have?

True Signup and view all the answers

Another term used to describe 'no deductible' is?

First dollar basis Signup and view all the answers

What is the typical deductible for basic surgical expense insurance?

$0 Signup and view all the answers

Which of the following would basic medical expense coverage not cover?

True Signup and view all the answers

Not covered under basic hospital expense coverage?

True Signup and view all the answers

Which of the following best describes the 'first dollar coverage' principle in basic medical insurance?

The insured is not required to pay a deductible. Signup and view all the answers

Which of the following is not true regarding basic surgical expense coverage?

True Signup and view all the answers

Don has both a basic and a major medical policy. He quickly exhausts his basic expense policy. What must Don do before his major policy can pick up where the basic expense policy left off?

Pay a special deductible on his major medical policy Signup and view all the answers

In a relative value system of determining coverage for a given procedure, what term describes the total amount payable per point?

Conversion factor Signup and view all the answers

What is the elimination period?

30 days Signup and view all the answers

Bethany injures herself in England. Bethany owns a general disability policy. What will be the extent of benefits that she receives?

None, general disability does not cover loss by war, overseas residence, military services, injuries trying to commit a felony. Signup and view all the answers

Which of the following would not be considered a limited coverage policy?

Major medical expense insurance Signup and view all the answers

Which of the following is the term for the specific dollar amount that must be paid by an HMO member for a service?

Copayment Signup and view all the answers

As it pertains to group health insurance, COBRA stipulates that?

Group coverage must be extended for terminated employees up to a certain period of time at the former employee's expense. Signup and view all the answers

Benefits periods for individual short-term disability policies will usually continue from?

6 months to 2 years Signup and view all the answers

Which of the following statements is not correct concerning the COBRA Act of 1985?

True Signup and view all the answers

Who chooses a primary care physician in HMO?

The individual member Signup and view all the answers

Which of the following is a feature of a disability buyout plan?

A lump-sum benefit payment option Signup and view all the answers

An HSA holder who is 65 years old decides to use the money in the account for a nonhealth expense. Which of the following is true?

There will be a tax Signup and view all the answers

Which of the following would be an example of a limited accident and health insurance policy?

A dread disease policy Signup and view all the answers

Which type of hospital policy pays a fixed amount each day that the insured is in a hospital?

Indemnity Signup and view all the answers

To be eligible under HIPAA regulation, for how long should an individual converting to an individual health plan have been covered under the previous group plan?

18 months Signup and view all the answers

Which of the following is not covered by health HMO?

Elective services Signup and view all the answers

Which of the following is available to employers of all sizes?

Health reimbursement arrangements Signup and view all the answers

Which of the following is true of a PPO?

True Signup and view all the answers

If an employee terminates, which of the following provisions would allow her to continue health coverage under an individual policy, if requested within 31 days?

Conversion Signup and view all the answers

Roland had $500 in his health reimbursement account when he quit his job. What happens to that money?

Roland can access the $500 at his previous employer's discretion. Signup and view all the answers

This arrangement specifies who will purchase the disabled partner's interest in the event he or she becomes disabled.

Disability buyout Signup and view all the answers

Which of the following would be an example of limited accident and health insurance policy?

A dread disease policy Signup and view all the answers

Which of the following is a feature of a disability buyout plan?

A lump-sum benefit payment option Signup and view all the answers

What is the goal of HMO?

Early detection through regular check-ups Signup and view all the answers

Which of the following is not true regarding basic surgical expense coverage?

True Signup and view all the answers

Study Notes

Insurance Contracts

Acceptance occurs when the insurer approves a prepaid application.
Essential elements of a legal insurance contract include offer, acceptance, and consideration; conditions are not required.
An offer in insurance is typically made upon submission of the application.
Legal contracts require that both parties meet certain conditions to be enforceable, such as no felony convictions.

Consideration in Insurance

Consideration involves the binding force of a contract; if an insurer neglects to pay a legitimate claim, it may violate consideration.
An insured's promise to submit timely claims is not considered valid consideration.
When an insured provides truthful statements and pays the required premium, it is known as consideration.

Agent Responsibilities

An agent must ensure all application questions are answered and must collect payment upon policy delivery.
If an agent makes corrections on an application, the applicant must initial those changes.
The old insurance policy must remain in force until the new policy is issued during replacement.

Medical Information Bureau (MIB)

The MIB is a nonprofit organization that retains underwriting information for life and health insurance applicants.
Its members must report adverse medical information concerning individuals.

Reporting and Consumer Disclosure

Insurers must notify consumers within 3 days about obtaining an investigative consumer report.
If a consumer requests additional information regarding a report, the insurer has 5 days to comply.

Policy Types and Coverages

Major medical policies are not designed to pay on a first dollar basis.
In basic expense policies, after exhausting limits, the insured must pay a corridor deductible before major medical coverage starts.
First dollar coverage does not require an insured to pay deductibles.

Health Insurance Specifications

Under HIPAA, individuals converting to a health plan must have been covered under a group plan for 18 months.
A general disability policy does not cover losses due to war or overseas residence.
Limited coverage policies, such as dread disease policies, cover specific risks and are different from major medical expense insurance.

Group Health Insurance

COBRA mandates that group coverage for terminated employees must be extended for some time at their own expense.
Conversion provisions allow employees to continue health coverage under an individual policy if requested within 31 days post-termination.

Health Reimbursement Accounts (HRA)

HRAs allow employers to reimburse employees for qualified medical expenses and are available to employers of all sizes.

Disability Buyout Plans

Disability buyout plans specify who will purchase a disabled partner’s interest, offering lump-sum benefit options for those who become disabled.

Special Coverage Situations

Health Maintenance Organizations (HMOs) prioritize early detection through regular check-ups and generally do not cover elective services.
When using funds from a Health Savings Account (HSA) for non-health expenses, tax penalties apply.

Final Considerations

Key terms and definitions related to insurance, medical history, and underwriting decisions, such as material misrepresentation, significantly influence coverage eligibility and claims processing.

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Test your knowledge on the key concepts from Chapters 1 and 2 of insurance. These flashcards cover important terms and definitions that are essential to understanding insurance contracts and their elements. Perfect for students wanting to reinforce their learning!