Free Alabama Accident & Health Practice Questions

Keep these three straight and you'll bank easy points all day: a peril is the cause of loss (fire, wind, theft), a hazard is something that increases the chance or severity of that loss, and risk is the uncertainty of loss itself. The peril is the thing that actually does the damage.

Morale hazard is the 'eh, I'm covered' attitude: indifference or carelessness that creeps in because insurance exists. It's not dishonesty (that's moral hazard) and it's not a physical condition (physical hazard). Trick to remember: moralE hazard is about a person's lazy attitudE.

A physical hazard is a tangible condition that increases the likelihood or severity of a loss: gasoline in the garage, a slippery floor, frayed wiring. You can see or touch it. If it's an attitude problem it's morale; if it's dishonesty it's moral; if it's a physical thing sitting there raising the odds, it's physical.

An insurer can't predict whether your house specifically will burn down, but give them a big enough pool of similar homes and they can predict pretty accurately how many out of the whole group will. That's the law of large numbers: more similar exposures, more reliable predictions. It's the statistical engine that makes pricing coverage possible at all.

Buying insurance is the classic risk transfer: you hand the financial consequences of a loss to the insurer in exchange for a premium. Avoidance means not doing the risky thing at all, retention means keeping the risk yourself (like a deductible), and reduction means lowering the odds or severity (smoke detectors). Insurance equals transfer.

The law of large numbers needs lots of similar exposures to make predictions reliable. A big pool of comparable homes lets the insurer forecast losses; a handful of wildly different ones doesn't. And concentrating them all in one spot is actually bad: one hurricane could wipe out the whole pool at once.

An admitted (or authorized) insurer holds a certificate of authority from the state and plays by that state's rules. A non-admitted (unauthorized) insurer hasn't been granted one, which is where surplus lines come in for hard-to-place risks. Also worth knowing: domestic equals home state, foreign equals another state, alien equals another country.

A captive (or exclusive) agent represents a single insurer, and that insurer owns the book of business. An independent agent represents multiple companies and owns their own expirations (the renewal rights). The ownership-of-expirations detail is the classic distinguisher.

An agent represents the insurer (the principal); that's the cornerstone of agency law. A broker, by contrast, represents the insured. So when an agent acts within their authority, the insurer is on the hook for what they do. Agent equals the insurer's rep.

Aleatory means the exchange of value can be lopsided and depends on chance. You might pay $600 in premium and collect $200,000 on a claim, or pay for years and never file one. That built-in inequality, hinging on whether a loss happens, is what makes the contract aleatory.

Disability income coverage doesn't pay medical bills; it replaces a paycheck. When illness or injury keeps you from working, it provides periodic income (usually a percentage of your earnings) so the bills at home still get paid. Hook: disability income protects the paycheck, not the medical bill.

In group coverage the insurer issues one master contract to the group sponsor (typically the employer), and each covered member receives a certificate of coverage rather than an individual policy. Hook: the employer holds the master contract; employees hold certificates.

Group coverage is underwritten on the group as a whole, its size, industry, and demographics, rather than screening each person's health. That's why an employee can usually enroll without a medical exam during the eligibility window. Hook: group underwriting looks at the group, not each individual's medical history.

Both require the insurer to keep renewing to a stated age, so neither can drop the insured for health reasons. The difference is price: noncancelable freezes the premium too, while guaranteed renewable lets the insurer raise rates for an entire class. Hook: both guarantee the coverage; only noncancelable also guarantees the premium.

Optionally renewable hands the insurer discretion: at each anniversary or renewal date it can decide whether to renew at all and can raise the premium. It's much weaker protection for the insured than guaranteed renewable. Hook: the insurer holds the option, so renewal is its choice at each renewal date.

A cancelable policy lets the insurer terminate coverage at virtually any time with proper written notice (returning any unearned premium), making it the least secure arrangement for the insured. The other classifications all restrict when, or whether, the insurer can walk away. Hook: cancelable means the insurer can pull the plug almost anytime, so it's the weakest guarantee.

A copayment is a set flat fee, say $25 for an office visit or $15 for a prescription, that the insured pays at the point of service. Unlike coinsurance, it doesn't change with the size of the bill. Hook: a copay is a fixed dollar ticket price per service, not a percentage.

The stop-loss, or out-of-pocket maximum, protects the insured from runaway costs: once their deductible and coinsurance add up to the cap, the insurer pays 100% of covered charges for the rest of the period. Hook: stop-loss stops the bleeding, since after the cap the insured's share drops to zero.

Cost-sharing features like deductibles and coinsurance keep the insured financially involved, which both spreads the cost and discourages overusing services for minor issues. That helps hold premiums down for everyone. Hook: cost-sharing gives the insured skin in the game, curbing overuse and helping control premiums.

The Fair Credit Reporting Act requires that an applicant be told, in advance, that an investigative consumer report, which gathers information on character, lifestyle, and reputation through interviews, may be obtained. The applicant also has the right to learn the nature and scope of the report. Hook: the FCRA guarantees you advance notice that a lifestyle or reputation report may be pulled.

Once the time limit passes, the insurer loses the right to deny a claim merely because the condition predated the policy, unless that condition was specifically named and excluded by endorsement. It protects insureds from late-discovered, unintentional omissions. Hook: after the clock runs out, an unexcluded pre-existing condition can't be used to refuse the claim.

If the insurer requires an application for reinstatement and then neither approves it nor rejects it by sending written notice, the policy is automatically reinstated on the 45th day after the application date. Hook: insurer silence for 45 days equals automatic reinstatement.

On reinstatement, accidental injury losses are covered immediately, but sickness is covered only if it begins more than 10 days after the reinstatement date. The 10-day gap on sickness exists to discourage someone from reinstating only because they've just become ill. Hook: accidents covered at once, sickness has to wait 10 days after reinstatement.

Benefits are generally paid to the insured, while any death benefit (such as under AD&D) goes to the named beneficiary, or to the insured's estate if none is named. Hook: living benefits to the insured, death benefits to the beneficiary.

The facility of payment clause lets the insurer pay up to a stated amount to a relative or whoever appears equitably entitled, which is useful when there's no living beneficiary or the insured is deceased or incapacitated. It gives the insurer a practical way to settle small amounts without a court. Hook: facility of payment is the insurer's shortcut to pay someone fairly entitled when no beneficiary fits.

The insured generally has up to 3 years (5 in some states) from the time proof of loss is required to file a lawsuit, after which the right to sue expires. Hook: at least 60 days before you can sue, no more than 3 years after, that's the legal-action window.

Move to safer work and the insurer reduces the premium to the lower-risk rate, refunding the excess premium already paid for the period. The change works in the insured's favor here. Hook: a safer job means a lower premium and money back.

Because age affects the premium, a misstatement is corrected by adjusting the benefit rather than canceling coverage: the insurer pays what the premium actually paid would have bought at the true age. Hook: a wrong age just resizes the benefit to match what you really paid for.

This provision lets the insurer avoid paying for losses the insured suffers while committing or attempting a felony or from being engaged in an illegal occupation. Hook: get hurt while breaking the law in a serious way and the policy won't pay.

A probationary period is an initial stretch, often the first 15 to 30 days after the policy starts, during which sickness-related losses aren't yet covered; it keeps someone from buying a policy after symptoms appear. Accident coverage usually begins right away. Hook: a short waiting period at the start before sickness benefits kick in.

The own-occupation definition pays benefits when the insured can't perform the main duties of their specific occupation, even if they could work in some other field. It's the more generous definition because it judges disability against your actual career. Hook: own occ asks only whether you can do your own job.

Own occupation is the more favorable, and more expensive, definition, because it pays when you can't do your specific job regardless of whether you could earn a living elsewhere. Any occ, by contrast, sets a much higher bar to collect. Hook: own occ favors the insured, any occ favors the insurer.

Residual disability coverage pays a partial benefit scaled to your loss of income, so if a disability cuts your earnings by 40%, you collect roughly 40% of the total disability benefit. It bridges the gap when you can work but not at full capacity. Hook: residual benefits track your percentage of lost income.

The recurrent disability provision says that a relapse from the same cause within a set time (often six months) counts as a continuation of the prior claim, so the insured doesn't have to satisfy a brand-new elimination period. A later, unrelated disability would start fresh. Hook: same cause, soon after, means it picks up where it left off, no new waiting period.

The probationary period is a short stretch at the start of the policy during which sickness-related disabilities aren't covered, which discourages someone from buying coverage once symptoms appear. Disabilities from accidents are usually covered from day one. Hook: a probationary period delays sickness coverage at the very start, while accidents are covered right away.

The benefit is simply 60% of monthly earned income: 0.60 times $5,000 equals $3,000 per month. The remaining 40% stays uninsured on purpose, preserving the incentive to return to work. Hook: 60% of $5,000 is $3,000, the monthly check.

A return of premium rider refunds part of the premiums paid, less any claims, after a stated number of years, rewarding insureds who stay healthy. It raises the premium in exchange for that potential refund. Hook: stay claim-free and the insurer hands back a chunk of your premiums.

A disability buy-sell arrangement supplies the money for the remaining owners (or the business) to purchase the share of an owner who becomes permanently disabled, mirroring how a life-insurance buy-sell works at death. Hook: it funds the buyout of a disabled owner's stake in the business.

Key person DI pays the business a benefit when an essential employee is disabled, helping cover lost productivity and the cost of recruiting or training a replacement. The business owns the policy and receives the benefit. Hook: it cushions the company when a key player can't work, much like key person life does at death.

Workers' compensation is an occupational-only program: it pays for work-related injuries and illnesses regardless of fault, but covers nothing that happens off the job. That's why private and group DI often coordinate around it. Hook: workers' comp covers on-the-job harm only.

UCR ties the allowable benefit to what providers in the same area normally charge for that procedure, rather than to a flat schedule. A charge far above the local norm may not be fully covered. Hook: UCR pays the going local rate, not just any billed amount.

Basic hospital expense pays a daily room-and-board benefit (often up to a stated maximum per day and number of days) plus miscellaneous hospital charges like lab work and medications. It doesn't cover the surgeon, which is surgical expense. Hook: hospital expense pays for the bed and the hospital's charges, not the surgeon.

Comprehensive major medical merges basic and major medical into one policy, so a single deductible and coinsurance structure covers everything from routine care up through catastrophic claims. Hook: comprehensive equals basic plus major rolled into one plan with one deductible.

Supplementary (or superimposed) major medical layers on top of a basic plan, picking up large or extended expenses once the basic plan's limited benefits run out. Hook: supplementary major medical is the backup layer that kicks in after basic runs dry.

The corridor deductible is the gap the insured must cover between the exhaustion of the basic plan's benefits and the start of the supplementary major medical benefits. It links the two layers together. Hook: the corridor is the deductible bridge between basic running out and major medical starting.

Because HMOs are paid a fixed amount per member, keeping members healthy directly benefits the plan, so they emphasize preventive care and wellness, like checkups and screenings, often at little or no cost. Hook: HMOs push prevention because healthy members cost them less.

Under capitation, the HMO pays a provider a set amount for each member assigned to them per period, whether that member needs a lot of care or none. It gives providers an incentive to manage care efficiently. Hook: capitation pays per head, not per service.

An EPO is a middle ground: like an HMO, it generally covers only in-network providers (no out-of-network benefits except emergencies), but like a PPO, it usually doesn't require a gatekeeper referral to see a specialist. Hook: EPO equals HMO network rules with PPO-style direct specialist access.

The whole point of managed care is to rein in costs and coordinate care, using networks, gatekeepers, and utilization review, while still aiming to maintain quality. It's a deliberate contrast to open-ended fee-for-service. Hook: managed care manages both the dollars and the care.

An FSA lets an employee set aside pre-tax salary for medical costs, but it traditionally follows a use-it-or-lose-it rule: money not spent by the plan year's end (subject to limited grace or carryover options) is forfeited. Hook: an FSA is pre-tax but use-it-or-lose-it, so don't overfund it.

A valid insurable group must exist for some primary reason other than getting insurance, such as an employer, a union, or a trade association, so the coverage is incidental and the group isn't just assembled to game the system. Hook: the group has to exist first for another reason, with insurance as a perk, not the point.

Experience rating sets a group's premium according to its own claims history, so a group with low claims earns lower rates. It's common for larger groups, while smaller groups are often community rated using a broader pool. Hook: experience rating prices you on your own group's track record.

Community rating spreads risk across a wide pool and charges similar rates regardless of any one group's experience, which protects small groups from volatile pricing. It's the counterpart to experience rating. Hook: community rating prices everyone off the shared community pool, not your group alone.

Someone who passes up the on-time enrollment window becomes a late enrollee and may have to provide evidence of insurability or wait until an open enrollment period to join. The penalty discourages waiting until you're sick to sign up. Hook: enroll late and you may have to prove insurability or wait, the cost of not signing up on time.

HIPAA aimed to make health coverage more portable, limiting how pre-existing condition exclusions could be applied when someone changed jobs and crediting prior coverage. It also barred group plans from discriminating based on health status. Hook: HIPAA is about portability, carrying coverage from one job to the next without being penalized for prior conditions.

HIPAA's nondiscrimination rule prohibits a group plan from denying an eligible individual coverage, or charging them more, because of their health status or medical history. Everyone in the eligible group must be treated alike. Hook: HIPAA says a group plan can't single you out for being sick.

Creditable coverage is prior, generally continuous, health coverage that gets credited against any pre-existing condition waiting period a new plan might impose, shortening or eliminating it. Hook: creditable coverage is the prior coverage you get credit for when you switch plans.

Coordination of benefits assigns one plan as primary (pays first) and the other as secondary (pays the balance up to allowable limits) so the total paid doesn't exceed the actual expense. Your own employer plan is usually primary for you. Hook: COB just sorts out who pays first and who pays the rest.

The single-employer, employer-employee group is by far the most common form of group coverage, with the employer as sponsor and policyholder. Other valid groups include associations, unions, and multiple-employer arrangements. Hook: employer-employee is the everyday group plan most people picture.

METs and MEWAs let small employers pool together to obtain group coverage with the buying power and stability of a larger group, something they couldn't easily get alone. Hook: small employers team up through a MET or MEWA to act like one big group.

Basic restorative procedures typically sit in the middle tier, often paid at around 80%, with the patient covering the remaining 20% after any deductible. Hook: basic care lands in the middle, often about 80% covered.

To encourage preventive care, plans commonly waive the deductible on cleanings and exams while applying it to basic and major services. That keeps the barrier off the care the plan most wants people to use. Hook: the deductible usually skips preventive care and lands on basic and major work.

Plans often require a waiting period (such as 6 to 12 months) before paying for expensive major services, which discourages someone from enrolling, getting costly work, and then dropping the plan. Preventive care is usually available immediately. Hook: big-ticket dental work often comes with a waiting period; cleanings do not.

Only $200 of the annual maximum remains ($1,500 minus the $1,300 already paid), so the plan pays $200 toward this procedure and the patient covers the rest. The annual maximum caps total payments regardless of the individual procedure's coinsurance. Hook: the plan pays only what's left under the annual max, here $200, and the patient absorbs the overage.

With predetermination, the dentist submits the proposed treatment plan and the insurer estimates what it will cover before the work is done, so there are no payment surprises. It's recommended for expensive procedures. Hook: predetermination is a no-surprises preview of what the plan will pay.

The alternate benefit (LEAT) provision lets the plan calculate its payment based on the cheapest treatment that would adequately do the job. If the patient chooses a pricier option, they pay the difference. Hook: the plan pays for the cheapest adequate fix; upgrades are on the patient.

Dental is usually written as its own standalone plan rather than folded into major medical, with its own premium, deductible, maximums, and benefit tiers. Employers often offer it as a separate elective benefit. Hook: dental typically stands on its own, separate from the medical plan.

Routine vision coverage handles the everyday eye-care items, periodic exams plus eyewear like lenses, frames, and contacts, usually through allowances and frequency limits. Disease and surgery fall under medical coverage instead. Hook: routine vision means exams and eyewear, not eye disease or surgery.

Vision plans typically grant a fixed allowance toward frames or contacts (for example, an allowance applied at purchase), and the member pays anything above that allowance. Exams may carry a small copay. Hook: vision gives you an allowance to spend, and you cover the overage.

Treatment of eye disease or injury, like glaucoma, cataracts, or an eye infection, is medical care and is covered under the health plan, not the routine vision plan, which handles only exams and eyewear. Hook: disease and injury to the eye go through medical coverage; routine vision handles glasses and checkups.

Medicare's standard eligibility age is 65, the same age tied to its origins alongside Social Security. Certain younger people qualify too, such as those who have received Social Security disability for the required period. Hook: 65 is the magic Medicare age.

Part A is hospital insurance: it covers inpatient hospital stays, limited skilled nursing facility care, home health care, and hospice. Everyday doctor visits fall under Part B. Hook: Part A is the hospital side, inpatient, skilled nursing, home health, hospice.

Part A pays for limited, short-term skilled nursing care after a qualifying hospital stay, with full coverage for an initial period and coinsurance after that, but it does not pay for ongoing custodial (long-term) care. That gap is a key reason people buy LTC insurance. Hook: Part A skilled nursing is short and skilled, not long-term custodial.

Part A uses benefit periods: one begins when you're admitted and ends after you've been out of a hospital or skilled nursing facility for 60 days in a row. A new stay after that starts a new benefit period (and a new deductible). Hook: a Part A benefit period resets only after 60 days fully out of care.

Part B is optional; those who want it pay a monthly premium (often deducted from Social Security). Because it's voluntary and carries a premium, beneficiaries must usually take action to enroll, and late enrollment can bring a penalty. Hook: Part B is the part you choose and pay a monthly premium for.

Skipping Part B when first eligible, without other qualifying coverage, can trigger a lifelong premium surcharge for late enrollment. It's designed to encourage timely sign-up. Hook: wait too long on Part B and you pay a permanent penalty.

Part D is the prescription drug benefit, delivered through private drug plans (either standalone or built into a Medicare Advantage plan). It helps cover the cost of outpatient medications. Hook: Part D is for drugs, the prescription piece of Medicare.

The Medigap open enrollment period runs for 6 months starting when the person is 65 or older and enrolled in Part B. During this window, coverage is guaranteed-issue: the insurer can't deny coverage or charge more for health reasons. Hook: 65 plus Part B starts a 6-month guaranteed-issue Medigap window.

LTC benefits are also triggered by severe cognitive impairment, such as Alzheimer's or other dementia, even if the person can still physically perform ADLs, because they need supervision for safety. Hook: serious cognitive decline is its own LTC trigger, separate from the ADL test.

Modern LTC policies cover care across a spectrum of settings, skilled nursing facilities, assisted living, adult day care centers, and care provided in the insured's own home, reflecting how people actually receive long-term care. Hook: good LTC follows the care wherever it happens, from a nursing home to your own living room.

Itemizers can deduct unreimbursed medical expenses, but only the portion that exceeds a set percentage of AGI (currently 7.5%). Expenses below that floor aren't deductible. Hook: only medical costs above the AGI floor count, and only if you itemize.

Medical expense benefits simply reimburse what you spent on care, so they aren't treated as income and are received tax-free. You can't deduct the same expense the insurer reimbursed, though. Hook: getting paid back for medical bills isn't income, so it's tax-free.

Without itemizing, a typical individual gets no federal deduction for personal health premiums; they're paid with after-tax dollars. (Self-employed individuals are a notable exception, covered separately.) Hook: no itemizing usually means no deduction for your health premiums.

Because the insured paid the premiums with after-tax dollars and got no deduction, the disability benefits come back income-tax-free. This is why individual DI benefits aren't reduced by taxes. Hook: after-tax premiums in means tax-free benefits out, the core DI rule.

If the employer paid (and deducted) the premiums and the employee was never taxed on them, the disability benefits are taxable to the employee when received; the tax simply shifts to the back end. Hook: employer-paid, employer-deducted DI premiums mean the employee is taxed on the benefits.

When premiums are split, the benefits are taxed in proportion: the part attributable to the employer's deducted premium is taxable, and the part attributable to the employees' after-tax contributions is tax-free. Here that's about 60% taxable and 40% tax-free. Hook: split the premium, split the tax, in the same proportions.

The employer's premium payments aren't taxed to the employee when paid; the tax is deferred to the benefit stage if a claim arises. Hook: the premium isn't taxed now, the benefit is taxed later instead.

Pull HSA money out for non-medical reasons before age 65 and it's taxed as ordinary income plus a 20% penalty. After 65, non-qualified withdrawals are taxable but penalty-free (like an IRA). Hook: misuse the HSA early and it's income tax plus a steep 20% penalty.

HRA reimbursements for qualified medical expenses are tax-free to the employee, and the employer funds and deducts the arrangement, another tax-favored health benefit. Hook: employer-funded HRA reimbursements reach the employee tax-free.

The self-employed health insurance deduction lets self-employed individuals deduct premiums for medical, dental, and qualified LTC coverage above the line, without having to itemize, subject to certain limits. Hook: the self-employed get a special above-the-line write-off for their health premiums.