Free California Accident & Health Practice Questions

A hazard doesn't cause the loss itself; it just makes a loss more likely or more severe. Icy steps, frayed wiring, a careless attitude: none of those start the fire or the fall, but they tip the odds. Causes of loss are perils; hazards just stack the deck.

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.

Indemnity is the whole heartbeat of insurance: you get made whole, not rich. The goal is to put you back where you were financially right before the loss, no better, no worse. That's why you can't insure a $20,000 car for $80,000 and cash in. Insurance reimburses a loss; it doesn't hand out winnings.

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.

A stock insurer is owned by its stockholders (shareholders), who receive taxable dividends when the company profits. Policyholders are just customers. Contrast that with a mutual insurer, which is owned by its policyholders. Stock equals stockholders; mutual equals members/policyholders.

A mutual insurer is owned by its policyholders, so a 'dividend' is really a return of overpaid premium, which is why it's generally not taxable. And it's never guaranteed; it depends on the company's results. Stock dividends, by contrast, go to stockholders and are taxable.

Express authority is the authority written right into the agency agreement, the powers the insurer explicitly hands the agent. Implied authority fills in the gaps needed to use that express authority, and apparent authority is what the public reasonably assumes. Express equals expressly stated.

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.

Unilateral means only one side makes a legally enforceable promise, and it's the insurer, who promises to pay covered claims. The insured doesn't actually promise to keep paying premiums; they just won't get coverage if they stop. One enforceable promise equals unilateral.

The four elements are agreement (offer and acceptance), consideration, competent parties, and legal purpose. A notarized signature isn't on the list, so it's the odd one out. Consideration, by the way, is what each side brings to the table: the insured's premium and the insurer's promise to pay.

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.

Most health policies define a covered sickness as one that first appears (manifests) and is contracted while the coverage is in force. This wording is what lets insurers exclude pre-existing conditions that showed up before the policy started. Hook: a covered sickness has to show up on the policy's watch, not before it began.

Disability income is paid as a stream of periodic payments (usually monthly) for as long as the qualifying disability lasts, up to the policy's benefit period. It functions like a substitute paycheck rather than a one-time payout. Hook: think of it as a replacement salary that keeps coming while you can't work.

The principal sum is the full benefit, paid for accidental death or for severe losses like both hands or both eyes. The capital sum is a percentage of that principal sum, paid for the loss of a single member or sight in one eye. Hook: principal sum is the whole pie (death or two losses); capital sum is a slice (one loss).

Guaranteed renewable means the insurer must renew the policy to the stated age, but it may raise premiums as long as the increase applies to a whole class of policyholders, never singling out one person. Hook: guaranteed renewal of the coverage, but the price can move for the whole class.

Conditionally renewable sits in the middle: the insurer may refuse renewal, but only for specific non-health conditions spelled out in the contract, like an age limit or ending employment. It can't decline simply because the insured got sick. Hook: renewal depends on stated conditions, none of which is the insured's health.

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 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.

First the insured pays the $500 deductible. That leaves $4,500, which the 80/20 coinsurance splits, so the insured pays 20% of $4,500, or $900. Add the deductible and the coinsurance share: $500 + $900 = $1,400, while the insurer pays the remaining $3,600. Hook: deductible first, then your coinsurance percentage of what's left, so $500 plus $900 equals $1,400.

An attending physician's statement (APS) is a report the insurer obtains, with the applicant's authorization, from the doctor who treated a disclosed condition. It fills in clinical details the application alone can't provide. Hook: when underwriters need the medical specifics, they go to the treating doctor for an APS.

The entire contract is just the policy plus the application attached to it. Nothing outside those documents, not the agent's promises and not the company's internal rules, can be made part of the agreement. Hook: if it isn't in the policy or the attached application, it isn't in the contract.

Changes to the contract are valid only when approved in writing by an executive officer of the insurer, and even then they must be noted on or attached to the policy. An agent has no power to waive or alter provisions. Hook: only a company officer can change the deal, never the agent at your kitchen table.

After the policy has been in force for a set period, commonly two years, the insurer can no longer void it or deny a claim because of misstatements in the application, with fraudulent misstatements being the usual exception. It mirrors the incontestable clause in life insurance. Hook: after about two years, honest application errors can no longer be used against the claim.

Written notice of claim must be given within 20 days after a covered loss, or as soon as reasonably possible. It simply alerts the insurer that a claim is coming. Hook: 20 days to put the insurer on notice that a loss occurred.

The insurer has 15 days after notice of claim to send the claimant the forms used to file proof of loss. Hook: notice of claim starts a 15-day clock for the insurer to provide claim forms.

Proof of loss is the supporting documentation, bills, statements, and records, that lets the insurer verify a claim and determine what it owes. Without it, the insurer can't properly evaluate the claim. Hook: proof of loss is the evidence file that backs up the claim.

This provision prevents overinsurance on disability claims: if the benefits from all the insured's disability coverage would exceed their actual earnings, the insurer can proportionally reduce its benefit and refund the excess premium. The goal is to keep disability income from becoming more lucrative than working. Hook: it caps disability benefits at your earnings so you can't profit from being disabled.

This optional provision excludes losses sustained while the insured is intoxicated or using narcotics not taken on a physician's advice. Prescribed and properly used medications don't trigger the exclusion. Hook: losses while drunk or on non-prescribed narcotics aren't covered.

The free look period, commonly 10 days, lets a new policyowner examine the policy and return it for a full premium refund if they decide it isn't right. Hook: about 10 days to look it over and back out for a full refund.

A pre-existing condition is one that was diagnosed, treated, or for which advice was sought (or that a prudent person would have sought treatment for) before the coverage took effect. Policies may limit or exclude such conditions for a time. Hook: pre-existing means it was already on the radar, treated or advised, before coverage began.

The any-occupation definition is stricter and more insurer-friendly: you're considered totally disabled only if you can't work in any job that fits your background. It's harder to qualify for benefits than under own occ. Hook: any occ asks whether you can do any suitable job, not just your old one.

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.

A longer elimination period means the insurer pays out less often and later, so it charges a lower premium. The insured accepts more of the short-term risk in exchange for a cheaper policy. Hook: wait longer to collect, pay less to own, so a longer elimination period means a lower premium.

No benefits are paid during the elimination period, so with a 60-day elimination period, benefits start accruing only after those 60 days of continuous disability have passed. The insured covers that initial gap themselves. Hook: nothing is paid until the elimination period clock runs out.

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.

Once a disability lasts past the waiver's waiting period (commonly 90 days), the insurer waives further premiums for as long as the disability continues, and often refunds any premiums paid during the waiting period. The policy stays fully in force. Hook: stay disabled long enough and the insurer stops charging premiums, sometimes back to day one.

Insurers typically issue benefits in the range of about 60% to 66 2/3% of gross earned income. Since individually paid benefits are received tax-free, that range often comes close to the insured's after-tax take-home pay. Hook: think roughly two-thirds of income, which lands near net take-home pay.

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 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.

Social Security disability imposes a five-month waiting period, so benefits start in the sixth full month of disability. Combined with the strict definition, it makes private disability income coverage important for bridging that gap. Hook: Social Security disability makes you wait five months before the first payment.

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.

An HMO operates on a prepaid basis: members pay a fixed periodic amount and receive comprehensive services from the HMO's providers, who are often paid by capitation (a set fee per member). It shifts the focus from billing per service to managing care within a fixed budget. Hook: an HMO is prepaid care, a flat fee buys a defined set of services.

HMOs require members to use the plan's network of providers (outside of true emergencies), which is how they control cost and coordinate care. Go outside the network and the service generally isn't covered. Hook: HMO equals in-network only, except for emergencies.

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.

PPOs typically don't use a gatekeeper, so members can go straight to a specialist without first getting a referral from a primary care physician. It's more convenient but usually costs more in premium than an HMO. Hook: no gatekeeper in a PPO, you can self-refer to specialists.

A POS plan blends the two models: members pick a primary care physician and get the best benefits in network (HMO-style), but they can still go out of network at a higher cost (PPO-style). They decide at the point of service. Hook: POS is the HMO-PPO hybrid, gatekeeper inside, freedom outside for more money.

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 HSA belongs to the individual, so it follows them from job to job, the balance rolls over year to year, and it offers strong tax treatment: deductible (or pre-tax) contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Hook: an HSA is yours to keep, rolls over, and is tax-favored coming and going.

An HRA is funded solely by the employer, which sets aside money to reimburse employees for qualified medical expenses. Because the employer owns it, the rules on carryover and portability are set by the employer. Hook: the employer funds and owns the HRA.

Coordination of benefits prevents duplicate payment when someone has two plans: one is designated primary and pays first, the other is secondary and may cover the remainder, but the total can't exceed the actual cost. It stops the insured from making money on a claim. Hook: COB keeps two plans from paying more than 100% combined, primary first, secondary second.

The insurer issues one master contract to the group sponsor, and each covered member gets a certificate of coverage summarizing their benefits and rights. The members don't hold individual policies. Hook: the sponsor gets the master contract, the members get certificates.

A noncontributory plan is fully employer-paid; the employee contributes nothing toward the premium. A contributory plan, by contrast, has the employee pay a share. Hook: noncontributory means the employee does not contribute, so the employer foots the whole bill.

COBRA applies to group health plans of employers with 20 or more employees. Smaller employers may be subject to state mini-COBRA laws instead. Hook: 20 employees is the federal COBRA threshold.

Conversion must be requested within a short window after group coverage ends, commonly 31 days. Miss that window and the right to convert without evidence of insurability is lost. Hook: act fast, the conversion window is short, often about 31 days.

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.

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 birthday rule makes the plan of the parent whose birthday comes first in the calendar year (earliest month and day, not earliest birth year) the primary plan for a dependent child. It's a simple tiebreaker, not based on who is older. Hook: the earlier birthday in the year means the primary plan for the kids.

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.

Association (or alumni and trade) groups can offer coverage when the association is a bona fide organization formed for reasons other than insurance, with a real purpose, defined membership, and adequate size. Hook: an association group works only if the association is real, not a shell built just to sell coverage.

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.

A combination plan blends the two methods, often paying preventive and basic care on a UCR percentage basis while using a fixed schedule for certain services (or vice versa), to balance predictability and flexibility. Hook: a combination plan mixes scheduled and nonscheduled methods in one plan.

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.

The annual (calendar-year) maximum is the ceiling on what the plan pays per covered person each year; once reached, the patient pays the rest until the maximum resets the following year. Dental annual maximums are often modest. Hook: the annual max is the plan's yearly payout ceiling per person.

Because orthodontic treatment is a one-time, multi-year course, plans cap it with a separate lifetime maximum rather than an annual one. Once that lifetime amount is used, ortho benefits end. Hook: ortho is capped for life, not per year.

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 plans generally exclude purely cosmetic work, like whitening or veneers done solely for appearance, since it isn't medically necessary. Functional and preventive care is what's covered. Hook: cosmetic-only dental work is on you; the plan covers function, not vanity.

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.

A discount plan isn't insurance: instead of paying benefits, it gives members access to providers who charge negotiated, reduced fees, and the member pays those lower prices directly. There's no claim or reimbursement. Hook: a discount plan buys you cheaper prices, not insurance benefits.

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.

People already drawing Social Security are usually enrolled in Part A automatically at 65, since Part A is premium-free for those with enough work credits. Part B enrollment may require action because it carries a premium. Hook: Part A usually arrives automatically when you're already on Social Security.

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.

Medigap is designed to fill gaps in Original Medicare, so it doesn't work with, and shouldn't be sold to, someone on a Medicare Advantage plan. Selling Medigap to an Advantage enrollee is a prohibited practice. Hook: Medigap and Medicare Advantage don't mix, one supplements Original Medicare, the other replaces it.

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.

Medigap policies, sold by private insurers, pay some or all of the out-of-pocket costs Original Medicare leaves behind, like the Part A deductible and the Part B 20% coinsurance. They work alongside Original Medicare, not in place of it. Hook: Medigap fills the holes Original Medicare leaves.

Medigap plans are standardized into lettered plans (Plan A, Plan G, Plan N, and so on); a given lettered plan offers identical core benefits no matter which insurer sells it, so consumers can compare on price and service. Hook: same letter equals same benefits, whoever sells it.

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 insurance fills the gap left by Medicare, which doesn't pay for ongoing custodial care, by covering help with daily living over an extended period, whether in a facility or at home. Hook: LTC covers the long-term custodial care Medicare leaves out.

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.

You can't get a tax benefit twice for the same dollar. If you deducted a medical expense and the insurer later reimburses it, that reimbursed amount can become taxable to undo the earlier deduction. Hook: no double-dipping, deduct and then get reimbursed, and the reimbursement is pulled back into income.

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.

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.

Taxability of disability benefits turns on how the premiums were funded: pre-tax employer dollars lead to taxable benefits, after-tax employee dollars lead to tax-free benefits. Hook: follow the premium dollars, pre-tax in equals taxable out.

Key person DI premiums are not deductible (the business is also the beneficiary), and the benefits the business receives are income-tax-free, the same nondeductible-in, tax-free-out pattern as key person life insurance. Hook: key person coverage, no deduction in, tax-free out.

Disability buy-sell premiums are not deductible, much like a life insurance buy-sell, and the benefits used to fund the buyout are received income-tax-free. Hook: buy-sell premiums aren't deductible, but the buyout funds come tax-free.

Employer-paid medical expense benefits reimburse care and stay tax-free, but employer-paid disability income benefits replace taxable wages, so they're taxable to the employee. The benefit type, not just the funding, matters here. Hook: employer health benefits stay tax-free, while employer-paid disability benefits are taxed because they replace a paycheck.

FSA contributions come out of salary on a pre-tax basis, lowering the employee's taxable income, in exchange for the use-it-or-lose-it restriction on unused funds. Hook: FSA money goes in pre-tax, shrinking your taxable pay.

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.

Premiums for a tax-qualified LTC policy count as deductible medical expenses, but only up to age-based dollar limits and only to the extent total medical costs exceed the AGI floor. Hook: qualified LTC premiums can be deducted, within age caps and the usual medical-expense floor.