17 Free South Carolina Life & Health Practice Questions: Accident and Sickness Types of Policies (2026)

Answer: B

A Business Disability Buyout policy provides the funds for the remaining partners to buy out a permanently disabled partner's interest in the company, typically paid in a lump sum. A Group Disability Income policy provides income replacement for employees. A Business Overhead Expense policy covers business operating costs. A Key Employee policy protects the business from the loss of a vital employee's productivity.

Answer: C

The Capital Sum in an AD&D policy is a percentage of the Principal Sum, typically paid for the loss of a single limb or sight in one eye. The Principal Sum is paid for accidental death or loss of two limbs/sight in both eyes. Therefore, the loss of one hand would typically trigger a Capital Sum payment, which is usually 50% of the Principal Sum, in this case, $75,000.

Answer: C

A Preferred Provider Organization (PPO) allows members to choose between in-network providers (at a lower cost) and out-of-network providers (at a higher cost). Unlike HMOs, PPOs typically do not require a referral to see a specialist within the network. An HMO strictly limits out-of-network care and requires referrals. A POS plan combines features of both but often still involves a PCP gatekeeper. An HDHP is a type of plan design, often a PPO, but the described flexibility is the key feature of a PPO.

Answer: D

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees and their dependents to continue their group health insurance coverage for a limited period after certain qualifying events, such as job loss, provided they pay the full premium plus an administrative fee. The ACA reformed health insurance markets. HIPAA provides privacy protections and ensures portability. ERISA sets standards for private employee benefit plans.

Answer: A

A Short-Term Medical policy is designed to provide temporary health coverage for individuals who are between jobs, waiting for new employer benefits, or other temporary coverage needs. These plans typically have lower premiums but often do not cover pre-existing conditions and have more limited benefits than comprehensive major medical plans. Major Medical policies are long-term, comprehensive plans. Medicare Supplement policies are for those on Medicare. Long Term Care policies cover extended care needs.

Answer: D

When an employer pays the full premium for a group disability income policy, the benefits received by the employee are taxable as ordinary income. This is because the premium payment is not considered taxable income to the employee, so the benefits are. If the employee had paid the premium with after-tax dollars, the benefits would be tax-free. Option A is incorrect in this scenario. Option B is incorrect because it states the opposite rule. Option C is incorrect as disability benefits are not subject to capital gains tax.

Answer: A

Under COBRA, the qualified beneficiary is responsible for paying the entire premium (both the employee and employer shares) plus a 2% administrative fee for the continuation coverage. Coverage is limited to a maximum period (18 or 36 months depending on the qualifying event), not indefinite. Employer subsidies end when employment ends. COBRA is available for various qualifying events, including termination (except for gross misconduct), not only for that reason. Options B, C, and D are incorrect.

Answer: A

Hospital indemnity insurance provides a fixed, predetermined cash benefit directly to the insured upon the occurrence of a covered event, such as hospital admission, surgery, or sometimes specific diagnoses. This benefit can be used to cover out-of-pocket costs like deductibles and copays. Dental and vision insurance cover specific types of care, not fixed cash payments for events. Critical illness insurance pays a lump sum upon diagnosis of a specified critical illness (like cancer, heart attack, stroke), which is different from the event-based payments of hospital indemnity. Option A is the best fit.

Answer: A

Similar to Business Overhead Expense (BOE) policies, premiums for Key Employee disability income policies are typically tax-deductible as a business expense. However, the benefits received by the business are considered taxable income. The benefit is not a non-taxable reimbursement for lost profits; it is treated as income to the business. The tax treatment does not depend on whether the employee is also an owner. Options B, C, and D are incorrect.

Answer: C

The policy defines disability as the inability to perform the material and substantial duties of one's own occupation, which is an 'own-occupation' definition. Under this definition, if the insured cannot perform their regular job as a nurse, they are considered totally disabled and eligible for benefits, even if they can work in another occupation like administrative work. Option A describes an 'any-occupation' definition, which would not approve the claim. Option B is incorrect because accident vs. sickness does not override the policy's definition of disability. Option D describes a residual disability benefit, which is for partial disability and not applicable here as the claim was approved for total disability.

Answer: B

Disability income policies include an elimination period (waiting period) that must be satisfied before benefits are payable. Benefits are not paid for any disability period shorter than the elimination period. Since the insured was disabled for only 85 days, which is less than the 90-day elimination period, no benefits are payable. Option A is incorrect because there is no 60-day threshold; the elimination period is the governing timeframe. Option C is incorrect because there is no pro-rata payment for partial satisfaction of the elimination period; the full period must be met. Option D is incorrect because while proof of lost income may be required for residual disability claims, the primary barrier here is the failure to satisfy the elimination period.

Answer: B

A Business Overhead Expense (BOE) policy is designed to reimburse the business for legitimate overhead expenses that continue despite the owner's disability, such as rent or mortgage on business premises, utilities, employee salaries (not the owner's salary), taxes, and insurance premiums. It does not cover the owner's salary replacement (that is the purpose of individual disability income), business loan principal payments (only interest may be covered in some policies, but principal is not), lost business income (BOE covers expenses, not lost revenue), or personal expenses of the owner such as a personal mortgage. Therefore, rent, utilities, and employee salaries are typical covered expenses under a BOE policy.

Answer: C

C is correct. Medigap Plan G covers the Medicare Part A deductible, Part A coinsurance and hospital costs for an additional 365 days, Part B coinsurance and copayments, Part B excess charges, the first three pints of blood, skilled nursing facility coinsurance and foreign travel emergency care up to the plan limits. A is wrong because no plan sold to people newly eligible after 2020 covers the Part B deductible. B is wrong because Medigap never covers long-term custodial care. D is wrong because prescription drugs are covered under Medicare Part D, not a Medigap plan.

Answer: A

Flexible Spending Accounts (FSAs) are subject to the 'use-it-or-lose-it' rule: any funds not used for qualified medical expenses by the end of the plan year are forfeited, unless the employer's plan offers a grace period (up to 2.5 months) or allows a limited carryover (capped at an amount the IRS adjusts each year). Option B is incorrect because carryover is not unlimited and is not automatic—it depends on employer plan design and is subject to IRS limits. Option C is incorrect because FSA funds cannot be used to pay health insurance premiums; they are restricted to qualified medical expenses such as copays, deductibles, and prescription drugs. Option D is incorrect because FSAs do not earn interest on the balance; unlike HSAs, which can be invested and earn tax-free interest, FSAs are purely spending accounts with no investment component.

Answer: C

A Key Employee disability income policy is designed to provide benefits to the business to help offset the financial impact of losing a key employee, including costs associated with finding and training a replacement. A BOE policy covers ongoing business expenses like rent and utilities, not replacement costs. An individual disability income policy replaces the insured's lost income, and a group disability income policy provides income replacement to employees, not the business for replacement costs.

Answer: B

An offset provision reduces disability benefits by other income sources like Workers' Compensation or Social Security disability benefits for the same loss of income. Coordination of benefits applies to medical expense policies to prevent overpayment from multiple insurers. The elimination period is the waiting period before benefits begin. A residual disability rider pays benefits when the insured can work but suffers a loss of income.

Answer: B

In an AD&D policy, the Principal Sum is the full amount payable if the insured dies as a result of a covered accident. The Capital Sum is a percentage of the Principal Sum, typically paid for dismemberment or loss of sight. Medical expenses are covered by medical expense policies, not AD&D.