California Life & Health Insurance Exam — All Questions

In a disability income policy, the 'elimination period' refers to:

• a.The maximum length of time benefits will be paid
• b.A waiting period after a disability begins before benefit payments start✓
• c.The period during which the insurer can cancel the policy
• d.The time the applicant has to return the policy for a refund

The elimination period is a waiting period, measured from the start of a covered disability, that must pass before the insured begins receiving benefit payments; it functions like a time deductible and a longer elimination period lowers the premium. The maximum time benefits are paid is the benefit period, a different concept. The insurer's ability to cancel relates to renewability provisions. The time to return the policy for a refund is the free-look period. Only the elimination period delays the start of benefits.

In a major medical plan, 'coinsurance' most accurately describes:

• a.A flat dollar amount the insured pays at each doctor visit
• b.The amount the insured must pay before the plan pays anything
• c.The most the plan will ever pay in a lifetime
• d.The percentage split of covered costs between the insurer and the insured after the deductible is met✓

Coinsurance is the sharing of covered expenses on a percentage basis (for example, the insurer pays 80% and the insured pays 20%) after the deductible has been satisfied. A flat dollar amount per visit is a copayment, not coinsurance. The amount the insured pays before the plan pays is the deductible. The most the plan will ever pay is a maximum benefit limit. Coinsurance specifically refers to the proportional cost split, and it stops once the insured reaches the out-of-pocket maximum (stop-loss).

The term 'morbidity' as used by health insurers refers to:

• a.The incidence and severity of sickness and disability in a given group✓
• b.The rate at which people in a group die
• c.The interest rate credited to reserves
• d.The percentage of premium spent on commissions

Morbidity measures the frequency and severity of illness, injury, and disability within a defined population, and health insurers use morbidity tables to price coverage. Mortality, by contrast, measures the rate of death and is used mainly for life insurance pricing. Morbidity is not an interest or investment measure, nor is it a marketing or commission figure. Understanding the morbidity-versus-mortality distinction is fundamental: health insurance risk is about getting sick or disabled, while life insurance risk is about dying.