Alaska Life & Health Insurance Exam — All Questions

A disability income policy uses an 'own-occupation' definition of total disability. This means the insured is considered totally disabled if, because of injury or sickness, they cannot:

• a.Leave their home for any reason
• b.Work in any job anywhere in the country
• c.Perform the material duties of their own regular occupation✓
• d.Perform the duties of any occupation for which they are reasonably suited

An own-occupation definition treats the insured as totally disabled when they cannot perform the important duties of their own regular occupation, even if they could work in some other job; it is the more generous (and thus more expensive) definition, favoring the insured. The 'any-occupation' definition, which is stricter, requires that the insured be unable to work in any job for which they are reasonably suited by education, training, or experience, and that is what the first and fourth options describe. Being unable to leave home is not part of either standard definition.

Benefits under most long-term care (LTC) insurance policies are typically triggered when the insured:

• a.Is unable to perform a specified number of the activities of daily living (ADLs) or has a severe cognitive impairment✓
• b.Loses their job
• c.Reaches a specified age such as 65
• d.Is admitted to a hospital for any reason

LTC benefits are usually triggered when the insured cannot perform a set number (commonly two) of the activities of daily living, such as bathing, dressing, eating, toileting, transferring, and continence, or suffers a severe cognitive impairment like Alzheimer's disease. Simply reaching an age does not trigger benefits. LTC is not the same as hospital coverage; it pays for custodial and long-term care such as nursing home or home care. Loss of employment is unrelated to LTC eligibility.

A key difference between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO) is that an HMO typically:

• a.Lets members see any provider out of network at the same cost as in network
• b.Reimburses members on a fee-for-service basis with no network at all
• c.Provides no coverage for preventive care
• d.Requires members to use network providers and often a primary care physician who coordinates referrals✓

HMOs emphasize managed care: members generally must use in-network providers and often select a primary care physician (a gatekeeper) who coordinates care and referrals to specialists, in exchange for lower costs. A PPO offers more flexibility, allowing out-of-network care at a higher cost, so paying the same cost regardless of network is not accurate for either an HMO or a PPO. Fee-for-service with no network describes a traditional indemnity plan. HMOs actually stress preventive care, so the last option is wrong.

Once an insured's covered out-of-pocket expenses reach the plan's 'stop-loss' (out-of-pocket maximum) for the year, the plan generally:

• a.Pays 100% of additional covered expenses for the rest of the year✓
• b.Requires the insured to pay 100% of remaining costs
• c.Cancels the policy until the next year
• d.Stops paying any further claims for the year

The stop-loss (out-of-pocket maximum) provision caps the insured's annual cost sharing; once the insured has paid that amount in deductibles and coinsurance, the plan pays 100% of additional covered expenses for the remainder of the year, protecting the insured from catastrophic costs. It does not stop the plan's payments, nor shift all remaining costs to the insured, which are the opposite of its purpose. Reaching the stop-loss does not cancel the policy. The provision exists specifically to limit the insured's financial exposure.

A 'noncancelable' disability income policy guarantees that the insurer:

• a.Covers only losses caused by accidents
• b.May cancel the policy at any anniversary it chooses
• c.Can neither cancel the policy nor change the premium as long as premiums are paid, up to a stated age✓
• d.May raise the premium but must always renew the coverage, which describes the guaranteed renewable provision instead

A noncancelable policy gives the insured the strongest guarantee: the insurer cannot cancel the coverage and cannot change the premium schedule, which is fixed in the contract, as long as premiums are paid up to a specified age. A policy that must renew but can reprice is guaranteed renewable, a weaker guarantee. It is not cancelable at the insurer's choice, and it is not limited to accidents. Noncancelable locks in both renewal and premium, making it the most protective (and often costliest) renewability provision.

Under a 'guaranteed renewable' health policy, the insurer:

• a.May refuse to renew if the insured's health worsens
• b.May raise an individual's premium based on that person's own claims experience alone
• c.May cancel the policy at each renewal date
• d.Must renew the policy but may adjust premiums only for an entire class of insureds✓

A guaranteed renewable policy requires the insurer to renew the coverage (usually to a stated age) and forbids singling out an individual for a rate increase or nonrenewal; premiums can be changed only for an entire class of similar policyholders. The insurer cannot cancel at renewal, cannot raise one person's premium for their own claims, and cannot refuse renewal because health declined. This provision sits between the stronger noncancelable and weaker conditionally renewable forms.

A 'conditionally renewable' policy allows the insurer to decline renewal:

• a.Only after the policy has been in force for twenty years, a time restriction this provision does not impose
• b.For absolutely any reason the insurer chooses
• c.Only for specific reasons stated in the contract, and not because of the insured's declining health✓
• d.Under no circumstances at all

A conditionally renewable policy lets the insurer refuse renewal only for reasons spelled out in the contract (such as the insured reaching a certain age or leaving employment), but it may not decline renewal simply because the insured's health has deteriorated. It is not renewable-or-cancelable at the insurer's whim, is not guaranteed under all circumstances, and has no twenty-year rule. This form gives the insurer more control than guaranteed renewable but still protects against nonrenewal for health reasons.

An 'optionally renewable' health policy gives the insurer the right to:

• a.Cancel the policy in the middle of a term without any notice to the insured, which this provision does not permit
• b.Refuse renewal or change premiums on policy anniversaries or premium due dates, at its own option✓
• c.Never change the premium for the life of the policy
• d.Renew the coverage indefinitely no matter what

An optionally renewable policy reserves for the insurer the option, at renewal (policy anniversaries or premium due dates), to either decline renewal or adjust the premium, giving the insurer substantial discretion. It does not lock in premiums, does not guarantee renewal, and generally does not permit cancellation in the middle of a paid term (renewability decisions occur at the renewal points). Optionally renewable is a weaker guarantee for the insured than guaranteed renewable.

Business overhead expense (BOE) disability insurance reimburses a disabled business owner for:

• a.The ongoing fixed business expenses, such as rent, utilities, and employee wages, while the owner is disabled✓
• b.The purchase of the owner's business interest from the estate, which is the role of a disability buy-sell policy rather than overhead coverage
• c.The owner's own lost personal salary
• d.The owner's personal medical bills

BOE insurance covers the continuing overhead costs of running the business (rent, utilities, staff salaries, and similar fixed expenses) while the owner is disabled, so the business can keep operating until the owner returns. It does not replace the owner's personal income (that is a personal disability income policy), fund a buyout (that is disability buy-sell), or pay personal medical bills. BOE benefits are also generally deductible to the business, and the reimbursements are taxable, reflecting their nature as a business expense reimbursement.

A disability buy-sell policy is designed to provide funds to:

• a.Reimburse the owner's personal medical expenses, which is the job of a health insurance plan instead
• b.Continue paying the disabled owner's salary
• c.Buy out the share of an owner who becomes permanently disabled, under a buy-sell agreement✓
• d.Cover the business's monthly overhead costs

A disability buy-sell policy funds the purchase of a permanently disabled owner's interest in the business by the other owners or the entity, mirroring how life-insurance-funded buy-sell agreements handle an owner's death. It does not continue salary, cover overhead, or pay medical bills, which are the jobs of personal disability income, business overhead expense, and health insurance respectively. The buy-sell policy ensures a smooth, funded transfer of ownership when disability makes an owner unable to continue.

Key-person disability income insurance pays its benefit to the:

• a.Disabled key employee personally rather than to the business that owns and pays for the coverage
• b.Key employee's family members
• c.State disability fund
• d.Business, to offset lost revenue and added costs while a vital employee is disabled✓

Key-person disability insurance is owned by and payable to the business, providing funds to cover the lost productivity, replacement hiring, and other costs the company faces when an essential employee becomes disabled. The benefit does not go to the employee personally or to the family (that would be personal coverage), and it is not paid to a government fund. Like key-person life insurance, the business is the owner, payer, and beneficiary of the policy.

A disability income policy that covers the insured only for injuries and sickness occurring away from the job is described as:

• a.Twenty-four-hour coverage
• b.Occupational coverage
• c.Presumptive coverage
• d.Nonoccupational coverage✓

Nonoccupational coverage applies only to disabilities arising off the job, because on-the-job injuries and illnesses are generally handled by workers compensation. Occupational coverage would include both on- and off-the-job causes. Twenty-four-hour coverage combines occupational and nonoccupational protection into one plan. Presumptive disability refers to automatic total-disability status for certain severe losses. Group short-term and long-term disability plans are commonly written as nonoccupational to avoid overlapping with workers compensation.

On-the-job injuries and illnesses of most employees are typically covered by:

• a.Medicare
• b.Workers compensation, which is separate from off-the-job disability coverage✓
• c.The employee's major medical plan alone
• d.A nonoccupational disability income policy, which specifically excludes on-the-job losses

Workers compensation is a separate, employer-provided coverage that pays for work-related injuries and illnesses, including medical care and a portion of lost wages, which is why private disability income policies are often written as nonoccupational. A nonoccupational policy specifically excludes on-the-job losses. Major medical is general health coverage, not the primary payer for work injuries, and Medicare is a federal program for seniors and certain disabled persons, not the on-the-job payer. Coordinating with workers compensation is an important design point for disability coverage.

Short-term disability (STD) coverage generally provides benefits for a maximum period of about:

• a.A few weeks up to roughly two years, depending on the plan✓
• b.The insured's entire lifetime with no maximum benefit period
• c.Thirty years
• d.Ten years

Short-term disability benefits are designed to cover brief periods out of work and typically last from a few weeks up to about two years at most, with many group plans paying for several weeks to a few months. They are not intended to run for a decade, for life, or for thirty years, which would be the province of long-term disability coverage. STD has a short elimination period and a short benefit period, filling the early gap before long-term coverage or savings take over.

Long-term disability (LTD) coverage typically begins after short-term benefits end and may continue paying until:

• a.A stated age such as 65, or for a set number of years, depending on the policy✓
• b.The insured reaches age thirty
• c.The end of the following month only, which is far too short for long-term coverage
• d.Exactly one week has passed

Long-term disability coverage picks up where short-term coverage leaves off and can pay benefits for a long duration, commonly to a stated age like 65 (or a set number of years) if the disability persists. It is not limited to the next month or a single week, and it is not tied to age thirty. LTD has a longer elimination period (often 90 days or more) and a much longer benefit period than STD, protecting against lengthy or permanent disabilities.

Skilled nursing care under a long-term care policy refers to:

• a.General housekeeping and laundry services
• b.Home-delivered meal service
• c.Daily nursing and rehabilitative care ordered by a physician and performed by licensed medical personnel✓
• d.Assistance with bathing provided by a personal aide, which is actually custodial care rather than skilled nursing care

Skilled nursing care is the highest level of long-term care: continuous, physician-ordered nursing or rehabilitative services delivered by licensed medical professionals such as registered nurses. Help with bathing is custodial care, a lower level. Housekeeping and meal delivery are support services, not skilled care. LTC policies distinguish among skilled, intermediate, and custodial care, and it is important to know that most long-term care needs are actually custodial rather than skilled.

Custodial care under a long-term care policy refers to:

• a.Emergency room treatment after an accident, which is acute medical care and not the routine daily assistance custodial care describes
• b.Help with the activities of daily living, such as bathing, dressing, and eating, that non-medical personnel can provide✓
• c.Complex surgery performed by specialists
• d.Intensive care provided in a hospital

Custodial care assists a person with the routine activities of daily living, bathing, dressing, eating, toileting, transferring, and continence, and can be provided by non-medical caregivers, making it the most common type of long-term care. It is not intensive hospital care, surgery, or emergency treatment, which are acute medical services. Because standard health insurance and Medicare largely do not cover custodial care, long-term care insurance is designed to fill that gap.

Home health care coverage under a long-term care policy pays for:

• a.Daycare services for young children
• b.Care provided only in a nursing home and in no other setting
• c.Skilled or custodial care delivered in the insured's own home✓
• d.A stay in an acute-care hospital

Home health care benefits cover skilled or custodial services provided in the insured's own residence, such as visits from a home health aide or nurse, allowing the person to remain at home rather than move to a facility. It is not hospital care, is not limited to a nursing home, and has nothing to do with childcare. Many modern LTC policies emphasize home and community-based care because most people prefer to receive care at home for as long as possible.

An inflation protection option in a long-term care policy is important because it:

• a.Reduces the policy's premium each year
• b.Adds a life insurance death benefit
• c.Shortens the elimination period automatically each year, which is not the purpose of inflation protection
• d.Increases the daily or monthly benefit over time so it keeps pace with rising care costs✓

Because long-term care may be needed decades after a policy is purchased, and care costs rise over time, inflation protection increases the benefit amount (often by a fixed percentage each year) so the coverage remains adequate when care is finally needed. It does not lower the premium (it raises it), shorten the elimination period, or add a death benefit. Inflation protection is one of the most important features to evaluate when comparing LTC policies.

The elimination period in a long-term care policy functions as a:

• a.Discount applied to the premium
• b.Waiting period during which the insured pays for care out of pocket before benefits begin✓
• c.Cap on the total lifetime benefit
• d.Period during which the policy can be returned for a refund, which is actually the free-look provision

The elimination period in an LTC policy is a deductible measured in days: the insured must pay for their own care for that number of days after becoming eligible before the policy starts paying benefits, and a longer elimination period lowers the premium. It is not the maximum benefit, not a premium discount by itself, and not the free-look period (which is the right to return a new policy). The elimination period functions the same way here as in disability income insurance, as a time deductible.

Benefits received from a tax-qualified long-term care insurance policy are generally:

• a.Taxed at long-term capital gains rates rather than received free of income tax
• b.Deductible by the insurance company
• c.Fully taxable as ordinary income
• d.Received income-tax-free, up to federal per-day or actual-cost limits✓

Benefits from a tax-qualified LTC policy are generally received income-tax-free, subject to federal limits (a per-day amount or the actual cost of care, whichever applies). They are not fully taxable, not taxed as capital gains, and the concept of the insurer deducting them does not apply. Tax-qualified LTC policies also allow certain premiums to count toward deductible medical expenses, which is part of why the tax-qualified designation matters to buyers.

A hospital indemnity (hospital confinement) policy pays:

• a.Only the cost of surgery
• b.A fixed dollar amount for each day the insured is hospitalized, regardless of the actual charges✓
• c.The exact amount of the hospital's bill, which is how a medical expense plan pays rather than a fixed indemnity
• d.Nothing toward a hospital stay

A hospital indemnity policy pays a predetermined flat amount (for example, a set dollar figure per day of confinement) whenever the insured is hospitalized, no matter what the actual bill is, and the insured may use the cash for any purpose. It does not reimburse the exact bill (that is a medical expense plan), is not limited to surgery, and does provide a hospital benefit. Because it is a limited, fixed-benefit product, it supplements rather than replaces comprehensive medical coverage.

An accident-only policy covers:

• a.Losses resulting from accidental injury, but not from sickness✓
• b.Long-term custodial care
• c.Only routine annual checkups
• d.Both sickness and accidental injury equally under the same terms

An accident-only policy provides benefits solely for losses caused by accidental injury, such as emergency treatment, hospitalization, or disability resulting from an accident, and it does not cover illness. It is not comprehensive coverage for both sickness and injury, is not limited to checkups, and is not long-term care. Because it excludes sickness, an accident-only policy is a narrow, lower-cost product that should be presented as a supplement, not a substitute for major medical coverage.

A specified (dread) disease policy pays benefits:

• a.For accidental injuries only
• b.For routine dental cleanings
• c.For any illness the insured develops over the life of the policy
• d.Only for a named disease, such as cancer, that is listed in the policy✓

A specified or dread disease policy pays benefits only if the insured is diagnosed with a particular disease named in the contract, most commonly cancer, and pays nothing for other conditions. It is not general coverage for any illness, not an accident policy, and not dental coverage. Because its benefits are limited to one disease, it is a supplemental product, and producers must be careful not to let a consumer treat it as comprehensive health insurance.

An Accidental Death and Dismemberment (AD&D) policy pays:

• a.A principal sum for accidental death and a capital sum, a percentage of the principal, for the accidental loss of limbs or sight✓
• b.A monthly benefit for any illness the insured happens to develop, which is the province of a medical or disability policy rather than accidental death and dismemberment coverage
• c.Long-term custodial care benefits
• d.A guaranteed retirement income

AD&D coverage pays the full principal sum if the insured dies as a result of a covered accident, and pays a capital sum, a stated percentage of the principal, for the accidental loss of, or loss of use of, limbs or eyesight (for example, half the principal for the loss of one hand). It does not pay for illness, provide retirement income, or fund long-term care. AD&D is limited strictly to accidental death and dismemberment, so it is inexpensive but narrow.

Dental insurance plans commonly organize covered services into categories of:

• a.Accident and sickness
• b.Preventive, basic, and major services, sometimes with separate deductibles and annual maximums✓
• c.Skilled and custodial care
• d.Inpatient and outpatient care, a distinction used in medical expense plans rather than in how dental benefits are grouped

Dental plans typically classify services as preventive (cleanings and exams, often covered at or near 100 percent), basic (fillings and simple extractions), and major (crowns, bridges, and dentures), frequently applying deductibles and an annual dollar maximum. Inpatient and outpatient, accident and sickness, and skilled and custodial are classifications used in other kinds of coverage, not dental. Knowing the preventive-basic-major structure helps explain why dental plans emphasize low-cost preventive care.

Compared with an 'any-occupation' definition, an 'own-occupation' definition of total disability generally results in a premium that is:

• a.Higher, because the insured qualifies for benefits more easily✓
• b.Lower, because claims are less likely
• c.Zero, because own-occ coverage is free
• d.Identical, because the definition does not affect pricing

Own-occupation pays if the insured cannot perform their own job even if they could do another, making claims more likely and the premium higher. Any-occupation is stricter and therefore cheaper.

A 'split definition' of disability commonly uses:

• a.No formal definition of disability at all, leaving each claim entirely to the insurer's sole discretion to decide
• b.Any-occupation from the very first day
• c.Own-occupation for the entire benefit period
• d.Own-occupation for an initial period (such as 2 years), then any-occupation thereafter✓

A split definition applies the generous own-occupation standard early, then switches to the stricter any-occupation standard for the remainder of the claim, balancing protection and cost.

A residual disability benefit pays a proportional benefit when the insured:

• a.Voluntarily chooses to retire early even though the disability would not otherwise prevent full-time work
• b.Has fully recovered and returned to normal earnings
• c.Is totally and permanently disabled
• d.Returns to work but earns less because of the disability, based on the percentage of income lost✓

Residual (partial) disability benefits pay in proportion to lost income when the insured works but earns less due to the disability. It does not apply to total disability, full recovery, or voluntary retirement.

Under a presumptive disability provision, the insured is automatically considered totally disabled, often with no elimination period, upon:

• a.Any minor injury
• b.A voluntary change of jobs
• c.A brief hospital stay
• d.The loss of sight in both eyes, loss of hearing or speech, or the loss of use of two limbs✓

Presumptive disability treats certain severe losses, such as sight, hearing, speech, or two limbs, as total disability automatically, usually waiving the elimination period. Minor injuries or job changes do not qualify.

Individual disability income benefits are usually limited to roughly 60 to 70% of earned income so that:

• a.The insurer can earn a larger profit
• b.The insured retains a financial incentive to return to work, avoiding overinsurance✓
• c.The premium can be set higher
• d.The disability benefits would automatically become fully taxable to the insured once they exceed half of prior income

Capping benefits below full income prevents overinsurance and keeps a return-to-work incentive, since being disabled should not pay better than working. It is not about insurer profit, premium level, or taxation.

When an individual pays disability income premiums with after-tax dollars, the benefits received are:

• a.Taxed as capital gains
• b.Received income-tax-free✓
• c.Subject to a 10% penalty
• d.Fully taxable as ordinary income

Because the premiums were paid with already-taxed money, individually purchased DI benefits are received tax-free. Employer-paid premiums that were not taxed to the employee produce taxable benefits.

If an employer pays the disability income premiums and does not include them in the employee's income, the disability benefits the employee later receives are:

• a.Deductible by the employee
• b.Taxable as income to the employee✓
• c.Received completely tax-free
• d.Exempt from all federal tax rules

When the employer deducts the premiums and does not tax them to the employee, the resulting benefits are taxable to the employee. The flip side of tax-free premiums is taxable benefits.

Business overhead expense (BOE) insurance is designed to:

• a.Fund the disabled owner's personal retirement savings so that income continues after the business eventually closes
• b.Pay the owner's estate taxes
• c.Replace the disabled owner's personal salary
• d.Reimburse a disabled business owner for ongoing business expenses such as rent, utilities, and employee wages✓

BOE covers the fixed operating expenses of a business while the owner is disabled, keeping the doors open; it does not replace the owner's own income. Retirement and estate taxes are separate needs.

Business overhead expense benefits are generally ________, and the premiums are generally ________:

• a.received completely tax-free, while the premiums are also fully deductible as an ordinary business expense
• b.taxable, because they reimburse deductible expenses; deductible as a business expense✓
• c.taxable; not deductible
• d.tax-free; not deductible

BOE premiums are deductible as a business expense, and because they fund deductible overhead, the benefits received are taxable. This mirrors the general rule that deducted premiums lead to taxable benefits.

Key person disability insurance is owned by and pays benefits to:

• a.The federal government
• b.The key employee's family
• c.The key employee personally
• d.The business, to offset losses when a vital employee becomes disabled✓

Key person coverage is owned by the business, which is the beneficiary, to cushion the financial loss from a crucial employee's disability. It does not pay the employee or their family.

A disability buy-sell policy provides funds to:

• a.Buy out a disabled owner's business interest under a buy-sell agreement✓
• b.Replace the business's lost profits during the entire period that the owner remains totally disabled
• c.Pay the disabled owner's personal medical bills
• d.Pay the business's overhead expenses

A disability buy-sell funds the purchase of a disabled owner's share by the remaining owners or the business, per the buy-sell agreement. Medical bills, lost profits, and overhead are addressed by other coverages.

A Social Insurance Supplement (SIS) rider on a disability policy pays benefits when the insured is:

• a.Disabled but does NOT qualify for, or receives reduced, Social Security disability benefits✓
• b.Retired and collecting a pension
• c.Deceased
• d.Always disabled, regardless of other benefits

An SIS rider fills the gap when Social Security disability is denied or reduced, coordinating with the government benefit. It does not pay on top when full Social Security is received, nor at retirement or death.

A cost-of-living adjustment (COLA) rider on a disability policy:

• a.Waives the premium during disability
• b.Gradually shortens the benefit period each year in exchange for a higher initial monthly benefit amount
• c.Reduces the monthly benefit over time
• d.Increases the monthly benefit during a long claim to keep pace with inflation✓

A COLA rider raises benefits during an extended claim to offset inflation, protecting purchasing power. It does not reduce benefits, shorten the benefit period, or waive premiums.

A future increase option (guaranteed insurability) rider on a DI policy lets the insured:

• a.Buy additional monthly benefit as income grows, without new medical underwriting✓
• b.Skip the elimination period on claims
• c.Change occupations with no tax effect
• d.Decrease the monthly benefit only, in order to lower the premium as the insured grows steadily older

The future increase option lets the insured raise the benefit as earnings rise, without proving insurability again. It does not reduce coverage, address occupation taxes, or waive the elimination period.

Most disability income policies include a waiver of premium after the insured has been disabled for:

• a.The entire benefit period
• b.At least 5 years
• c.A specified period such as 90 days, after which premiums are waived and often refunded back to the start of disability✓
• d.Immediately, from the very first day of any disability, with all premiums paid during that time refunded to the policyowner in full

DI waiver of premium usually starts after about 90 days of disability, then waives premiums and often refunds those paid during the waiting period. It is not immediate, nor delayed for years.

A disability income policy described as 'occupational' coverage pays benefits for disabilities that occur:

• a.Only while traveling for work
• b.Only while at work
• c.Only off the job
• d.Both on and off the job (24-hour coverage)✓

Occupational coverage is round-the-clock, paying for disabilities whether they arise on or off the job. Nonoccupational coverage, by contrast, excludes on-the-job losses that workers compensation handles.

Workers compensation covers work-related injuries, so a 'nonoccupational' disability policy is designed to cover:

• a.Only on-the-job injuries, coordinating directly with the employer's workers compensation coverage
• b.Both on- and off-the-job losses equally
• c.Off-the-job injuries and illnesses, to avoid overlapping with workers compensation✓
• d.Neither on- nor off-the-job losses

Nonoccupational coverage pays only for off-the-job disabilities, since on-the-job injuries are covered by workers compensation. This prevents duplicate coverage of work injuries.

An accident-only policy will NOT pay benefits for:

• a.A broken leg from a fall
• b.An injury from a car accident
• c.Accidental dismemberment
• d.Illness such as pneumonia or cancer✓

Accident-only coverage pays for injuries but excludes sickness, so an illness like pneumonia or cancer is not covered. Falls, car-accident injuries, and dismemberment are accidents and are covered.

A dread disease (critical illness) policy pays:

• a.Long-term custodial and nursing home care benefits for insureds who cannot perform their daily activities
• b.Benefits only for accidental injuries
• c.A benefit only for a specifically named condition such as cancer or heart attack✓
• d.Benefits for any illness the insured develops

A dread disease policy is a limited plan paying only when a named condition, like cancer or heart attack, is diagnosed. It does not cover all illnesses, accidents generally, or long-term care.

Skilled nursing care, intermediate care, and custodial care are:

• a.Levels of long-term care that an LTC policy may cover✓
• b.The parts of Medicare
• c.Types of hospital surgery
• d.Annuity payout options

These describe the levels of long-term care, from skilled medical care down to non-medical custodial help. They are not surgeries, Medicare parts, or annuity options.

Custodial care, the level most often needed long-term, primarily involves:

• a.Emergency surgical treatment and other acute medical procedures that must be performed by licensed physicians in a hospital setting
• b.Care by skilled medical professionals under a physician's order
• c.Help with activities of daily living, such as bathing, dressing, and eating, that can be provided by non-medical personnel✓
• d.Prescription drug therapy only

Custodial care is non-medical assistance with daily living activities and is what most long-term care recipients require. Skilled care under a doctor's order and surgery are different, higher levels of care.

In an LTC policy, choosing a longer elimination period will generally:

• a.Extend the total benefit period
• b.Eliminate the benefits entirely
• c.Increase the premium, because the insurer must begin paying benefits much sooner after care starts
• d.Lower the premium, because the insured self-funds care longer before benefits begin✓

A longer elimination period means the insured pays out of pocket longer before benefits start, so the premium is lower. It does not remove benefits or lengthen the benefit period.

Inflation protection in an LTC policy is important because:

• a.LTC premiums are guaranteed never to change
• b.Care costs tend to rise over time, so a fixed daily benefit loses value✓
• c.Medicare will pay any shortfall in benefits
• d.Long-term care benefits are always fully taxable, so inflation protection mainly helps offset the tax owed

Because long-term care costs climb over the years, a level daily benefit erodes in real value, so inflation protection preserves purchasing power. Medicare does not backstop custodial care.

A distinguishing feature of an HMO is that it:

• a.Reimburses the insured after the fact on a fee-for-service basis
• b.Provides prepaid care through network providers, emphasizing preventive services, usually with low copays✓
• c.Operates with no provider network at all
• d.Covers only inpatient hospital stays and provides no benefits for routine or preventive outpatient office visits

An HMO delivers prepaid, managed care through its network with an emphasis on prevention and low member cost-sharing. Fee-for-service reimbursement and no network describe indemnity plans.