CEB S - GBA 1 & 2 Practice Exam 2023 -2024 with complete solution Which of the following statements correctly describes the negotiated placement method of marketing a group benefits plan? - answer -Once potential insurers are identified, each company sub mits a brief report that highlights its general strategy, philosophy and proposed group benefits plan Which of the following statements correctly describes eligibility requirements under most group insurance plans? - answer -Unmarried children under a sp ecified age and dependent on the plan member for support are eligible for coverage True North Insurance has established a waiver -of-premium reserve of $100,000 and will have to pay out an optional life insurance benefit of $200,000. With an interest rate of 6% compounded annually, how many years will it take for the reserve of $100,000 to accumulate to $200,000? - answer -12 years (Use the relationship between future value and present value to solve for the number of time periods. FVt = PV x (1 + r)^t $200,000 = $100,000 x (1 + 6%)^t $200,000/$100,000 = (1.06)^t 2.00 = (1.06)^t The number of time periods can be approximated using the future value table. With an interest rate of 6%, it will take 12 years to accumulate to a sum of $200,000 (or 2.01220).) Which of the following statements correctly describes a group insurance policy? - answer -It is issued on a group of individuals for protection against financial hazards, such as death, accident and sickness Last year, a small town reported that 20 people under the age of 50 died. If the population of people under the age of 50 in the town is 10,000, what is the probability of a resident under the age of 50 dying? - answer -0.2% (Probability of a resident under the age of 50 dying is 20/10,000 = 0.002 = 0 .2%.) Which of the following statements correctly describes the predictability of an event and the cost of insurance under a group benefits plan? - answer -An out -of-country emergency is an unforeseen event with a potentially high cost (Disability is an unforeseen event with a potentially high cost. Option C: Basic dental services are a predictable event with a low cost. Option D: Paramedical services are an unforeseen event with a low cost.) Which of the following statements best describes individual la rge amount pooling? - answer -It protects the plan sponsor from claims payments with respect to any one insured individual in excess of the pooling limit or pool ceiling. Nevaeh works full¬time as a business manager on her family's dairy farm. She has an allergy to grain that is triggered by direct contact. If she becomes sick and is unable to work, she loses her only source of income and her lifestyle will change significantly. Which of the following risk management approaches would BEST address Nevaeh's need to protect her income? - answer -Transfer the risk of becoming sick (Assuming Nevaeh wants to stay in farming, avoidance is not an option. Nevaeh can do everything she can to take measures to reduce her exposure, but if becoming sick jeopardizes her only source of income, Option C, purchasing insurance, is the best option.) Under the coordination -¬of-¬benefits (COB) provision, which of the following plans is the first payer in respect of a claim for a covered dependent child under a single -
custody a rrangement? - answer -Plan of the parent with custody of the child In terms of designing a group benefits plan, which of the following statements correctly describes a benefit/needs -oriented philosophy? - answer -An example of a needs -
oriented benefit i s health care Which of the following statements correctly describes static tables and tables with projection? - answer -In "mortality tables with projection," it is assumed that the mortality rate at a particular age will improve in the future by a certa in percentage per year (Static tables include mortality rates that are not adjusted for expected future mortality improvements. Option B: Instead of replacing tables, actuaries typically make adjustments for unexpected improvements in mortality. Option C: Setbacks method uses the same mortality rate but assumes that it applies to a lower age.) Which of the following statements correctly describes participation ratios in a benefits plan? - answer -A noncontributory life insurance plan with liberal eligibil ity requirements should have a reasonably high participation ratio (The level of benefits under a mandatory, noncontributory life insurance plan does not affect participation ratios. Option C: An optional life insurance plan should have a lower participati on ratio if eligibility requirements are tight. Option D: The level of plan member contributions under a voluntary, contributory plan has an impact on participation ratios.) Vivienne's health care plan pays a maximum of $5,000 if she is hospitalized. She was recently hospitalized and her actual expenses were $4,000. Vivienne's insurer will pay the actual amount of expenses and not the $5,000 maximum stipulated in the plan. This is an example of: - answer -A contract of indemnity (A valued contract specifi es in advance the amount payable when a loss occurs regardless of the actual loss amount. Option B: Face value is the amount of insurance payable under the policy. Option D: Liability risk is the risk of economic loss resulting from an individual being hel d accountable for harming others or their property.) Which of the following statements correctly describes processing health care claims under a group benefits plan? - answer -The plan member must submit a completed claim form and written proof of the ex pense within a specified time period to recover eligible expenses Which of the following statements correctly describes marketing a group benefits plan? - answer -If a plan sponsor decides to cancel a plan, it typically must notify the insurer within 30 to 60 days before the effective date of cancellation How is the funding arrangement for a nonunionized single -employer plan determined? - answer -By the amount the employer is willing and/or able to contribute from revenue Which of the following stateme nts correctly describes an income replacement benefit provided under a group benefits plan? - answer -Sick leave plans typically provide full pay for absences from work due to sickness or injury for a short period (A long -term disability (LTD) plan is the most common method of providing extended income replacement benefits to plan members who are disabled and unable to work due to prolonged illness or injury. Option C: Salary continuance plans typically provide benefits for the full period of short -term di sability up to the end of the elimination period under an LTD plan. Option D: An LTD plan typically replaces 55¬ -75% of a disabled plan member's gross earnings, subject to a maximum monthly amount.) Which of the following statements correctly describes th e financial accounting of a self -
insured group benefits plan using a billed -in-advance administrative services only (ASO) arrangement with an insurer? - answer -Year -end plan surpluses may be carried forward as a positive cash balance to the next contract period for payment of claims Eagle Assurance is expecting to pay total death benefits of $150,000 at the end of four years. Assuming the interest rate is 6% per year compounded semiannually, what reserve level must be held today to meet this future oblig ation? - answer -$118,412: Use the present value formula or present value table to determine the reserve level. r = 6%/2 = 3% and t = 4 x 2 = 8 PV = $150,000/(1 + 0.03)^8 PV = $118,412 OR PV = CF8 = PVIF(3%,8) PV = $150,000 = 0.78941 [from the prese nt value interest factor (PVIF) table] = $118,412. What effective annual rate (EAR) is equivalent to a nominal rate of 18% per annum compounded every month? - answer -Effective annual rate = (1 + (Nominal annual rate/m))^m − 1 = (1 + (.18/12))^12 − 1 = 19.56% Which of the following statements correctly describes prospectively rated underwriting? - answer -It bases premium rates in whole or in part on the group's own claims experience Which of the following statements correctly describes the difference between mortality tables and morbidity tables? - answer -It is more difficult to predict morbidity than mortality, since there are fewer sources of credible data (Changes in mortality show a steady and gradual downward trend; changes in morbidity can be b oth positive and negative. Option C: Mortality tables are used to price policies where claim amounts are specified in advance; the potential claim amount under a policy based on morbidity tables is unknown. Option D: Mortality tables are used to forecast d ate of death and date of onset of the insured event; morbidity tables are used to forecast date of death, date of onset and severity, size and duration of each claim.) If the probability that a pregnant woman will bear twins is 0.10, triplets is 0.05, quadruplets is 0.005 and quintuplets is assumed to be zero, what is the probability that a pregnant woman will give birth to more than one child at the end of her pregnancy? - answer -0.155 (Only one event can occur (i.e., cannot have both triplets and twins ). P (twins or triplets or quadruplets or quintuplets) = P(twins) + P(triplets) + P(quadruplets) + P(quintuplets).) First on Site is a new media company hiring 50 employees in the next few months. It recognizes that a comprehensive benefits plan can contr ibute to attracting qualified employees. Because the company is a start -up, cash flow is a bit unpredictable; it has limited capacity to cover either fluctuating or large claim amounts. Which of the following funding methods would BEST address First on Sit e's concerns? - answer -Insured refund accounting with pooling arrangement (First on Site has an unstable cash flow and limited capacity to pay fluctuating claims. Under an insured refund accounting arrangement, they will assume less financial risk than u nder a self -insured arrangement. With pooling, the risk of having to pay claims above a specified amount is transferred to the insurer, so Option A, insured refund accounting with pooling, is the best choice for First on Site.)
custody a rrangement? - answer -Plan of the parent with custody of the child In terms of designing a group benefits plan, which of the following statements correctly describes a benefit/needs -oriented philosophy? - answer -An example of a needs -
oriented benefit i s health care Which of the following statements correctly describes static tables and tables with projection? - answer -In "mortality tables with projection," it is assumed that the mortality rate at a particular age will improve in the future by a certa in percentage per year (Static tables include mortality rates that are not adjusted for expected future mortality improvements. Option B: Instead of replacing tables, actuaries typically make adjustments for unexpected improvements in mortality. Option C: Setbacks method uses the same mortality rate but assumes that it applies to a lower age.) Which of the following statements correctly describes participation ratios in a benefits plan? - answer -A noncontributory life insurance plan with liberal eligibil ity requirements should have a reasonably high participation ratio (The level of benefits under a mandatory, noncontributory life insurance plan does not affect participation ratios. Option C: An optional life insurance plan should have a lower participati on ratio if eligibility requirements are tight. Option D: The level of plan member contributions under a voluntary, contributory plan has an impact on participation ratios.) Vivienne's health care plan pays a maximum of $5,000 if she is hospitalized. She was recently hospitalized and her actual expenses were $4,000. Vivienne's insurer will pay the actual amount of expenses and not the $5,000 maximum stipulated in the plan. This is an example of: - answer -A contract of indemnity (A valued contract specifi es in advance the amount payable when a loss occurs regardless of the actual loss amount. Option B: Face value is the amount of insurance payable under the policy. Option D: Liability risk is the risk of economic loss resulting from an individual being hel d accountable for harming others or their property.) Which of the following statements correctly describes processing health care claims under a group benefits plan? - answer -The plan member must submit a completed claim form and written proof of the ex pense within a specified time period to recover eligible expenses Which of the following statements correctly describes marketing a group benefits plan? - answer -If a plan sponsor decides to cancel a plan, it typically must notify the insurer within 30 to 60 days before the effective date of cancellation How is the funding arrangement for a nonunionized single -employer plan determined? - answer -By the amount the employer is willing and/or able to contribute from revenue Which of the following stateme nts correctly describes an income replacement benefit provided under a group benefits plan? - answer -Sick leave plans typically provide full pay for absences from work due to sickness or injury for a short period (A long -term disability (LTD) plan is the most common method of providing extended income replacement benefits to plan members who are disabled and unable to work due to prolonged illness or injury. Option C: Salary continuance plans typically provide benefits for the full period of short -term di sability up to the end of the elimination period under an LTD plan. Option D: An LTD plan typically replaces 55¬ -75% of a disabled plan member's gross earnings, subject to a maximum monthly amount.) Which of the following statements correctly describes th e financial accounting of a self -
insured group benefits plan using a billed -in-advance administrative services only (ASO) arrangement with an insurer? - answer -Year -end plan surpluses may be carried forward as a positive cash balance to the next contract period for payment of claims Eagle Assurance is expecting to pay total death benefits of $150,000 at the end of four years. Assuming the interest rate is 6% per year compounded semiannually, what reserve level must be held today to meet this future oblig ation? - answer -$118,412: Use the present value formula or present value table to determine the reserve level. r = 6%/2 = 3% and t = 4 x 2 = 8 PV = $150,000/(1 + 0.03)^8 PV = $118,412 OR PV = CF8 = PVIF(3%,8) PV = $150,000 = 0.78941 [from the prese nt value interest factor (PVIF) table] = $118,412. What effective annual rate (EAR) is equivalent to a nominal rate of 18% per annum compounded every month? - answer -Effective annual rate = (1 + (Nominal annual rate/m))^m − 1 = (1 + (.18/12))^12 − 1 = 19.56% Which of the following statements correctly describes prospectively rated underwriting? - answer -It bases premium rates in whole or in part on the group's own claims experience Which of the following statements correctly describes the difference between mortality tables and morbidity tables? - answer -It is more difficult to predict morbidity than mortality, since there are fewer sources of credible data (Changes in mortality show a steady and gradual downward trend; changes in morbidity can be b oth positive and negative. Option C: Mortality tables are used to price policies where claim amounts are specified in advance; the potential claim amount under a policy based on morbidity tables is unknown. Option D: Mortality tables are used to forecast d ate of death and date of onset of the insured event; morbidity tables are used to forecast date of death, date of onset and severity, size and duration of each claim.) If the probability that a pregnant woman will bear twins is 0.10, triplets is 0.05, quadruplets is 0.005 and quintuplets is assumed to be zero, what is the probability that a pregnant woman will give birth to more than one child at the end of her pregnancy? - answer -0.155 (Only one event can occur (i.e., cannot have both triplets and twins ). P (twins or triplets or quadruplets or quintuplets) = P(twins) + P(triplets) + P(quadruplets) + P(quintuplets).) First on Site is a new media company hiring 50 employees in the next few months. It recognizes that a comprehensive benefits plan can contr ibute to attracting qualified employees. Because the company is a start -up, cash flow is a bit unpredictable; it has limited capacity to cover either fluctuating or large claim amounts. Which of the following funding methods would BEST address First on Sit e's concerns? - answer -Insured refund accounting with pooling arrangement (First on Site has an unstable cash flow and limited capacity to pay fluctuating claims. Under an insured refund accounting arrangement, they will assume less financial risk than u nder a self -insured arrangement. With pooling, the risk of having to pay claims above a specified amount is transferred to the insurer, so Option A, insured refund accounting with pooling, is the best choice for First on Site.)
