Insurance & Risk Management Strategies Flashcards
7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance & Risk Management Strategies flashcards as text
A client owns a home-based business and assumes their homeowner's policy covers business equipment losses. What is the most accurate advice?
Answer: Homeowner's policies typically exclude or severely limit coverage for business property and liability.
Standard homeowner's policies exclude or cap coverage for business property and do not cover business liability, requiring a separate business owner's policy or endorsement.
Which risk management technique involves a client setting aside a dedicated savings fund to cover potential future losses instead of purchasing insurance?
Answer: Risk retention through self-insurance
Self-insurance (a form of planned risk retention) means deliberately funding potential losses with reserved assets rather than transferring risk to an insurer.
A 35-year-old client wants life insurance with the lowest initial premium and flexibility to convert later. Which policy type is most appropriate?
Answer: Annual renewable term with conversion privilege
Annual renewable term offers the lowest initial premium and, when it includes a conversion privilege, allows the client to convert to permanent insurance without proving insurability.
Under the HIPAA portability rules, which situation best illustrates a qualifying life event that triggers a special enrollment period for health insurance?
Answer: Loss of employer-sponsored group health coverage due to job loss
Involuntary loss of qualifying group health coverage (e.g., job loss) is a HIPAA-recognized qualifying event that entitles the individual to a special enrollment period.
A client's disability income policy pays benefits only when they cannot perform the duties of their own specific occupation. This is an example of which definition of disability?
Answer: Own-occupation definition
The own-occupation definition pays benefits if the insured cannot perform the duties of their specific occupation, regardless of their ability to work in another field.
Which of the following best describes the purpose of an umbrella liability policy?
Answer: It provides excess liability coverage above the limits of underlying auto and homeowner's policies.
An umbrella policy sits above underlying personal liability policies (auto, home) and pays claims that exceed those policies' limits, providing broad excess protection.
A client has a long-term care insurance policy with a 90-day elimination period. What does this mean?
Answer: The client must pay for care out-of-pocket for 90 days before benefits begin.
The elimination period in long-term care insurance is a waiting period during which the insured pays for care before policy benefits begin, similar to a deductible measured in time.