Chapter 5 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.


 An agent has an ethical duty to inform prospects of which of the following?
a. nature of long-term care   
b. cost of long-term care   
c. levels of long-term care service   
d. all of the above

ANS:     D
Agents should inform their clients of all of these important topics

An "Agent's Report" contains which of the following
a. material facts not disclosed in the application   
b. the completed application, signed disclosure documents, and the first premium check   
c. medical information collected by the agent   
d. all of the above

ANS:     A
The Agent's Report allows the agent to append additional information known to the agent as part of the application


 The purchaser of a partnership LTC policy should be aware that:
a. Medicaid does not provide the same level of LTC services as the partnership policy may provide   
b. Medicaid benefits are not automatic   
c. a partnership LTC policy may be more costly thatn a non-partnership policy   
d. all of the above

ANS:     D
A prospect relying on a partnership policy should be aware of the shortcomings of the Medicaid system, that the prospect may have to apply for (and may be rejected) for Medicaid benefits and that policies offering asset protection will cost more than comparable plans without that feature


  E&O insurance provides:
a. a greater level of LTC than a PQ LTC policy   
b. a greater level of LTC than a TQ LTC policy   
c. payment of legal fees to defend against unfounded charges of negligence   
d. none of the above

ANS:     C
Error and Ommission insurance is a liability policy that protects agents from charges of neglience or malpractice.  The policy will pay claims in the event of founded or unfounded charges.
What documents should an agent retain as evidence of his or her ethical conduct?
a. completed fact-finding forms   
b. customer correspondence   
c. notes on conversations with clients   
d. all of the above

ANS:     D
All of these should be retained by an agents, as well as completed applications, lists of products shown or recommened to clients, and  due diligence check lists


Which of the following best describes an unethical sales practice in which the agent conceals the nature of a sales call?
a. churning   
b. cold lead advertising   
c. high-pressure tactics   
d. twistng

ANS:     B
Cold lead advertising occurs with an insurer or agent conceals that the purpose of the sales presentation is to sell insurance.  Ethical agents always disclose their status as a licensed agent and the true nature of the sales presentation.


Which of the following are factors to consider when contemplating a partnership LTC policy?
a. possible relocation of the insured in the future   
b. possible changes in the Medicaid eligibility rules   
c. possible discontinuance of the state in the partnership program   
d. all of the above

ANS:     D
All of these could negatively affect the effectiveness of a partnership policy in attaining the client's financial goals.

Which of the following is a standardized form that asks questions related to the suitability of a LTC product for a prospective applicant?
a. application   
b. personal worksheet   
c. Buyer's Guide   
d. Outline of Coverage

ANS:     B
Personal worksheets address a particular client's LTC needs and the suitability of a proposed solution.  Buyer's (or Shoppers') Guides and Outlines of Coverage are documents that describe policies -- not necessarily their suitability for a particular client.

What must an agent do to ensure suitability of proposed LTC solutions?
a. obtain relevant information from the client   
b. adhere to state suitability requirements   
c. document the sales presentation   
d. all of the above

ANS:     D
Agents should make reasonable efforts to obtain relevant information from prospects, usually using a personal worksheet -- and document that effort.

Prospects with low incomes and few assets should:
a. always buy LTC insurance   
b. generally buy LTC insurance   
c. generally not buy LTC insurance   
d. never buy LTC insurance

ANS:     C
These prospects generally cannot afford the premiums for LTC -- and will generally qualify for government programs such as Medicaid


Which of the following could have a negative impact on an insurance plan that relies on a partnership LTC to meet the client's LTC goals?
a. the client has a high level of income   
b. the client purchases a partnership policy with a long benefit period   
c. the client has relatively few assets   
d. all of the above

ANS:     D
Partnership plans are designed to protect assets from Medicaid eligibility rules -- and avoid "spending down" assets and still qualify for Medicaid. If the client has a high income, he or she may not be able to qualify for Medicaid, so the partnership plan will fail in meeting that planning objective.  The policy will only protect assets in the event that the LTC benefits are exhausted -- policies with high benefit levels or long benefit periods may never be exhausted. If the client has relatively few assets, there is no need to "protect" them.

 A wealthy client reviews your sales presentation for a tax-qualified state partnership LTC policy and decides that the premium is rather high, and chooses to "self-insure" the risk instead.  Which of the following is (are) true?
a. The client exposes himself to uncapped liability   
b. This is a good method to maximize the size of the estate he can leave to heirs   
c. both a and b are true   
d. neither a nor b are true

ANS:     A
Relying on personal assets exposes the client to an unlimited "uncapped" level of liabiity.  While savings on premiums may increase the size of any eventual estate left to heirs, if the client needs LTC in the future, those costs could deplete the estate.

 Which of the following is typically NOT a factor to consider when recommending replacement of an existing LTC policy?
a. the identity of the existing policy's insurer   
b. whether the existing policy is tax-qualified or partnership-qualified   
c. the length of time the client has owned the existing policy   
d. the policy language of the existing policy

ANS:     A
The agent will want to compare the existing policy's terms and exclusions with the proposed policy -- this includes features such as tax-status and asset protection affored by partnership plans.  Older policies may have less-favorable terms than newer contracts -- and older policies may lock in lower premium rates.  The identity of the existing insurer is usually not a factor (unless the company's financial status is impaired).

When presenting a partnership qualified plan as a possible replacement for a recently issued tax-qualified LTC policy, which feature is most likely to be the focus of the presentation
a. guaranteed renewability   
b. policy exclusions   
c. asset protection
d. benefit limits

ANS:     C
One goal of the Deficit Reduction Act that allows for partnership policies is that there be uniformity between the terms of PQ and non-PQ policies.  The key distinction is that partnership policies offer possible asset protection from Medicaid eligibility requirements.

Purchasers of partnership qualified LTCI:
a. automatically qualify for Medicaid benefits once their policy's benefits are exhausted   
b. may protect their assets and income from Medicaid eligibilty requirements   
c. locks in current Medicaid eligibility requires relating to assets, but not income   
d. none of the above

ANS:     D
PQ LTCI policies will protect assets (but not income) from the Medicaid eligibility requirements in place at the time the insured applies for Medicaid benefits (that is, when the policy's benefits are exhausted).  The insured will have to apply for Medicaid if the policy is exhausted -- the same procedure as non-insured applicants.