Chapter 3 Review Questions

NOTE to Department of Financial Services.  The following questions represent a bank of questions that we will use to compile this chapter's review questions.  We use a software package that creates a  unique review for each student, scrambles choices and question order.  This bank is presented in its current format to allow the Department to see the text references for these questions.  Simply click on the question link to see the text reference. The software package provides feedback to the student -- the correct answer and the rationale.

 Which federal law clarified the tax-status of private LTC policies?
a. OBRA   
b. COBRA   
c. HIPAA   
d. DRA

ANS: C
HIPAA sets requirements for tax-qualified LTC policies, and clarified the tax status of long-term care riders, accelerated death benefits and viatical settlements.

 In most LTC policies, benefits will be payable when:
a. a physcian determines the insured needs long term care   
b. family members can no longer care for the insured   
c. the insured is discharged from the hospital and needs follow-up care   
d. the insured is deemed "chronically ill"

ANS:     D
Since the passage of HIPAA, the benefit trigger has been a "chronic illness" -- that is, the inability to perform at least two activities of daily life, or suffer a cognitive impairment that requires care to protect the insured -- certified by a licensed health care provider.



Which inflation protecton provison will result in the lowest premium cost to the policyholder?
a. 5% simple rate    
b. 5% compound rate   
c. 5% guaranteed purchase option   
d. there is no difference in the premium cost of these options

ANS:     C
The premium will be highest on the option that provides the greatest level of protection.  The simple and compound rate will automatically adjust benefits upwards -- the compound rate providing greater protection than the simple rate.  The guaranteed purchase provision allows the policyholder to increase benefits at his or her option. This option will be the least expensive -- but provide the least amount of protection.

 Which of the following nonforfieture options is provided on a LTC policy at no additional premium cost?
a. cash surrender   
b. return of premium   
c. shortened benefit period   
d. contingent nonforfieture benefits

ANS:     D
All of the choices presented are nonforfeiture options -- but only the "contingent" option is available at no extra premium.  The others may add significantly to the cost of the policy.

 A free look provision on a long-term care policy must be at least
a. 10 days   
b. 30 day   
c. 60 days   
d. 10 days but some states may require a longer period

ANS:     B
Federal legislation, HIPAA, requires tax-qualified LTC policy to offer applicants a 30 day free look.  Most LTC policies are tax-qualified.


What is the maximum benefit period allowable under a NAIC Model Act policy?
a. one year   
b. three years   
c. five years   
d. unlimited

ANS:     D
Some policies have an unlimited lifetime benefit -- these are called lifetime policies.


What is the minimum benefit period allowable under a NAIC Model Act policy?
a. one year   
b. three years   
c. five years   
d. unlimited

ANS:     A
NAIC policies must provide at least 12 months of benefits (and some states require two or three years as a minimum).

All of the following are true regarding tax treatment of LTC policies EXCEPT:
a. individuals may include LTC premiums in their itemized medical deductions   
b. LTC benefits can be received tax free   
c. there are age limits on the deductibilty of individual LTC premiums   
d. all LTC policies qualify for federal tax deduction

ANS:     D
Policies must meet HIPAA requirements to qualify for tax-deductible premiums and tax-free benefit payments.  A portion of LTC premiums can be included in a taxpayer's itemized medical expenses, depending on his or her age.



 What are contingent nonforfeiture benefits?
a. the only nonforfeiture benefit available at no additional cost   
b. in is a nonforfeiture required in some states   
c. is available only if the premium rate is significantly increased   
d. all of the above

ANS:     D
The contingent nonforfeiture option allows the policyholder to exercise a nonforfeiture option if premiums are raised significantly.  This option is available at no additional premium (unlike other non-forfeiture options) and some states require it.

 Which feature has the greatest impact on the premium the policyholder of a LTC will pay?
a. elimination period   
b. daily benefit amount   
c. survivor benefit   
d. inflation protection

ANS:     B
Of the choices made by the applicant, the benefit amount normally has the greatest impact on the amoun fot he premium.  In general there is a direct proportional relation -- a daily benefit of $120 is 20% more expensive than a daily benefit of $100, and a daily benefit of $80 costs 20% less.


Bernadette, a recently widowed 60-year old, applied for a LTC policy.  She might be entitled to a premium discount due to all fo the following reasons EXCEPT:
a. her membership in a service club   
b. her three sisters also applied for coverage   
c. a widow's discount   
d. her excellent health

ANS:     C
Discounts are available through group policies offered by employers, associations such as service clubs or financial institutions.  Insurers offer discounts when multiple members of family apply -- especially a husband a wife as they based on the concept that they will be able to care for each other.  Preferred rates are available for those in good health.


 What period is also known as the deductible period?
a. elimination period   
b. benefit period   
c. probationary period   
d. accumulation period

ANS:     A
The elimination period is also known as the deductible or waiting period.




 Which benefit model will pay benefits regardless of the amount of long-term care expenses actually incurred by the insured?
a. disability model   
b. indemnity model   
c. cash model   
d. all of the above

ANS:     D
The reimbursement (or expense-incurred) model bases benefit payments on actual costs incurred. The other methods -- disabilty (or cash) model and indemnity model -- pay a flat benefit if the insured's condition triggers benefits.  The indemnity model requires the insured to be receiving LTC services; the disability model does not.  In either case, the policy will pay the fixed benefit rate regardless of expenses incurred.

 The most commonly issued LTC policies cover:
a. comprehensive services   
b. services provided in nursing homes only   
c. home health care service only   
d. community-based health care services only

ANS:     A
Policies covering comprehensive (all-type) services are the most common policy type.


 The 90-day certification period:
a. requires the inability to perform ADLs for at least 90 days to trigger benefits   
b. is the maximum elimination period allowed on LTC group certificates   
c. is the NAIC mandated waiting period on partnership policies   
d. none of the above

ANS:     A
The benefit trigger under HIPAA is the inability to perform at least two ADLs for at least 90 days.  A physician must certified the condition will last for at least 90 days.

 Who is able to determine when long-term care is needed?
a. physician   
b. nurse   
c. medical social worker   
d. all of the above

ANS:     D
Under HIPAA a licensed health care professional must certify an insured's need for long-term care.