Free Vermont Accident & Health Practice Questions

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.

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.

Adverse selection is the insurer's headache: the people most likely to have a loss are also the most eager to buy and keep coverage. If underwriting didn't push back, the risk pool would fill up with bad risks and the math would collapse. It's exactly why underwriting and exclusions exist.

The company giving away (ceding) the risk is the ceding company; the company taking it on is the reinsurer. Easy hook: to 'cede' is to give up, so the one giving up the risk is the ceding company.

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.

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.

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.

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.

Medical expense insurance pays for the care itself, hospital stays, surgery, doctor visits, and related services, rather than replacing income. It's the bucket most people picture when they hear health insurance. Hook: medical expense pays the providers; disability income pays you.

AD&D pays only for losses caused by accidents: a death benefit if an accident is fatal, and a scheduled benefit for accidental dismemberment, such as losing a hand, foot, or eyesight. Death or loss from illness isn't covered. Hook: AD&D is strictly accident-driven; both the death and the dismemberment must come from an accident.

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.

Blanket coverage protects a constantly changing group whose members aren't named individually, like airline passengers, campers, or a sports team. You're covered simply because you belong to the defined group during the covered activity. Hook: a blanket covers whoever happens to be under it, no individual names required.

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.

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.

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.

The deductible is the insured's upfront share, the amount you pay before the insurer's coverage kicks in for the year. A higher deductible usually means a lower premium, since you're absorbing more of the early cost. Hook: the deductible is what you pay first, before the insurer pays anything.

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.

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.

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.

The grace period is a short window after a premium's due date during which the insured can still pay and keep the policy in force, so a late payment doesn't immediately cause a lapse. Hook: the grace period is breathing room to pay late without losing coverage.

The grace period varies with how often premiums are paid: 7 days for weekly premiums, 10 days for monthly premiums, and 31 days for any other mode. The less often you pay, the longer the grace period. Hook: weekly 7, monthly 10, everything else 31, so the rarer the payment, the longer the grace.

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.

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.

Benefits for a continuing loss like disability must be paid at regular intervals, at least monthly, while the disability lasts, rather than withheld until recovery. Other claims are paid promptly once proof of loss is received. Hook: ongoing disability benefits arrive at least monthly, not held to the end.

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.

If the insured moves to riskier work and is later hurt, the insurer can pay reduced benefits, specifically the amount the premium already paid would have purchased at the rate for the more hazardous job. The policy isn't void; the benefit is simply scaled to the risk. Hook: a more hazardous job means benefits shrink to match what your premium buys at the higher-risk rate.

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.

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.

The benefit period is the longest span the policy will keep paying for a single disability, such as 2 years, 5 years, or to age 65. A longer benefit period raises the premium. Hook: the benefit period is how long the checks can keep coming.

Insurers cap benefits below full income (and below what you'd net after taxes, since the benefits are often tax-free) so the insured always has a financial reason to recover and return to work. Paying 100% could encourage staying disabled, known as malingering. Hook: benefits stop short of full pay so working still beats collecting.

An integrated, or offset, plan coordinates with Social Security disability so the combined payment doesn't exceed the target percentage of income; the policy reduces its benefit (dollar-for-dollar or partially) by what Social Security pays. It controls overinsurance and lowers the premium. Hook: the policy's benefit shrinks by whatever Social Security kicks in.

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.

The COLA rider raises the monthly benefit periodically while the insured is on a long claim, usually tied to an inflation index, so a multi-year disability benefit doesn't lose purchasing power. Hook: COLA keeps a long-running benefit from being eaten away by inflation.

Short-term disability typically replaces a larger share of income (sometimes 60% to 70%) but only for weeks or months, while long-term disability pays a somewhat lower percentage for years or to retirement age. STD covers the early gap; LTD takes over for prolonged disabilities. Hook: STD pays more for a short time, LTD pays steadily for the long haul.

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.

Social Security uses a strict any-occupation standard: the worker must be unable to engage in any substantial gainful activity, and the condition must be expected to last at least 12 months or end in death. Many private claims would not meet this tough definition. Hook: Social Security disability is the strictest test, no substantial work of any kind, lasting a year or fatal.

The out-of-pocket maximum (stop-loss) caps the insured's coinsurance share. Once the insured has paid $2,000 in coinsurance, the plan switches to paying 100% of additional covered charges for the rest of the year, protecting against a catastrophic bill. Hook: hit the out-of-pocket max and your 20% share drops to 0%.

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.

The gatekeeper PCP manages each member's care and must provide a referral before the member can see a specialist, which keeps utilization, and cost, under control. Hook: in an HMO, you go through the gatekeeper PCP to reach a specialist.

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 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.

Precertification is a utilization-management tool: the plan reviews and approves certain planned services or admissions in advance to confirm they're medically necessary before agreeing to pay. Emergencies are generally exempt. Hook: precert means getting the plan's green light before non-emergency care.

Federal law generally lets young adults stay on a parent's health plan until they turn 26, regardless of student or marital status, when the plan offers dependent coverage. Hook: kids can ride a parent's plan to age 26.

Federal reform requires these plans to cover a core set of essential health benefits (things like hospitalization, prescription drugs, maternity, and preventive care) and bars them from denying coverage or claims based on pre-existing conditions. Hook: a guaranteed benefit floor, and no more pre-existing-condition lockouts.

Once eligible, an employee gets an enrollment period, a limited window often around 31 days, to elect coverage. Enroll on time and no evidence of insurability is required; miss it and they may become a late enrollee. Hook: the enrollment period is your on-time window to sign up without health questions.

The person continuing coverage pays the full premium, up to 102% of the group rate, with the extra 2% covering administrative cost. COBRA preserves access to the group plan, but not the employer's subsidy. Hook: you keep the group coverage but pay it all yourself, plus a 2% admin add-on.

Events such as divorce or legal separation, the covered employee's death, the employee becoming entitled to Medicare, or a child losing dependent status give the spouse or dependents up to 36 months of COBRA continuation. Hook: family-status events like divorce and death stretch COBRA to 36 months for dependents.

Termination for gross misconduct is the key exception; it does not trigger COBRA rights. Ordinary terminations, layoffs, and resignations do qualify. Hook: gross misconduct is the one firing that forfeits COBRA.

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.

For active employees age 65 and older at larger employers, the group health plan is primary and Medicare is secondary, under the Medicare Secondary Payer rules. The retiree situation can differ. Hook: still working at a big employer means the group plan leads and Medicare follows.

Coordination of benefits caps the combined payment at 100% of the actual covered expense, here $1,000, no matter how generous each plan is on its own. The primary pays first and the secondary covers the remainder up to that ceiling. Hook: two plans still pay only the real cost, never more than 100%.

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.

In a self-funded plan, the employer assumes the risk and pays claims directly out of its own assets, often using a third-party administrator to process them and stop-loss insurance to cap catastrophic exposure. Hook: self-funded means the employer is effectively the insurer, paying claims itself.

A scheduled dental plan lists a set dollar benefit for each covered procedure, regardless of what the dentist actually charges. If the bill exceeds the schedule amount, the patient pays the difference. Hook: scheduled dental is a fixed price list, one dollar figure per procedure.

A dental PPO contracts with a network of dentists who accept negotiated (discounted) fees, while still letting members see out-of-network dentists at a higher out-of-pocket cost. It mirrors the medical PPO model. Hook: a dental PPO is the discounted-network-with-an-exit-option model.

Plans usually cover preventive and diagnostic care at or near 100% with no deductible, because catching problems early is cheaper than treating them later. It's the same prevention logic as in managed medical care. Hook: prevention is usually free (100%, no deductible) because it saves the plan money down the road.

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.

Major services are usually covered at about 50%, the lowest tier, because they are expensive, so the plan shifts more of the cost to the patient through higher coinsurance. The three-tier 100/80/50 pattern is the classic dental structure. Hook: the bigger and pricier the work, the smaller the share the plan pays, with major care around 50%.

Orthodontia is usually a distinct, optional benefit with its own lifetime maximum (not an annual one) and a lower coinsurance percentage, and it's frequently limited to dependent children. Hook: ortho stands apart, with its own lifetime cap, lower coverage, and often kids only.

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.

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.

Frequency limitations cap how often each benefit can be used, such as one exam per year and frames every other year, controlling cost while still meeting routine needs. Hook: frequency limits set how often you can use each vision benefit.

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.

People under 65 can get Medicare if they've received Social Security disability benefits for 24 months, and certain conditions (end-stage renal disease, ALS) qualify sooner. Hook: long-term disability, not just age 65, can open the Medicare door.

Most people pay no premium for Part A because they (and their employers) already funded it through Medicare payroll taxes while working. Those without enough work credits can buy in by paying a premium. Hook: Part A is usually premium-free, paid for by a lifetime of FICA taxes.

Hospice care for the terminally ill is a Part A benefit, focused on comfort and support rather than cure. Hook: hospice rides under Part A, alongside the other inpatient-type benefits.

Part D plans are offered by private insurers approved by Medicare, and enrollment is voluntary (with a possible late penalty for delaying). Beneficiaries choose a plan that fits their medications. Hook: Part D is private, optional drug coverage you sign up for.

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.

Because Medicare largely excludes long-term custodial care, Medicaid has become a major payer of nursing home and long-term care, but only after a person has spent down assets to qualify under its strict financial limits. Hook: Medicaid is the big long-term-care payer, once you've spent down to qualify.

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.

Tax-qualified LTC policies generally pay when the insured is unable to perform at least two of the six ADLs (bathing, dressing, eating, transferring, toileting, and continence) for an expected period, or has a severe cognitive impairment. Hook: lose two of the six ADLs and tax-qualified LTC benefits kick in.

The six ADLs are bathing, dressing, eating, transferring (moving in and out of a bed or chair), toileting, and continence. They measure basic self-care, not complex tasks like driving or managing finances. Hook: ADLs are the basics, bathing, dressing, eating, transferring, toileting, continence.

Personal health insurance premiums generally aren't deductible, though they may count toward the itemized medical expense deduction if total medical costs clear the AGI threshold. Hook: personal health premiums usually get no deduction, paid with after-tax dollars.

Premiums for an individually owned disability income policy are not deductible; they're paid with after-tax dollars. That sets up the favorable treatment of the benefits. Hook: no deduction for personal DI premiums, you pay them after tax.

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 employees fund the premiums themselves with after-tax money, the resulting disability benefits come back tax-free, the same logic as an individually owned policy. Hook: employees paying after-tax premiums collect their DI benefits tax-free.

The value of employer-paid group health coverage is excluded from the employee's taxable income, so the employee gets the benefit tax-free. This is one of the most valuable tax breaks in the benefits world. Hook: employer-paid health coverage is tax-free to the employee, not counted as wages.

The combination is what makes it powerful: the employer deducts the premium as a business expense, and the employee pays no tax on either the coverage or the benefits. Hook: deductible for the employer, tax-free for the employee, the best of both ends.

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.

BOE premiums are deductible as a business expense, and because the benefits reimburse otherwise-deductible business expenses, the benefits are taxable to the business. It's consistent with the deduct-now, tax-later pattern. Hook: BOE premiums are deductible going in, so the benefits are taxable coming out.