BRODINSKI CASE: Florine and Ancil Brodinski have been married twenty-five years and have three children, ages 5, 7, and 11. The Brodinskis think of themselves as a middle-class to above-average-income family with typical educational aspirations for the three children. It is assumed that all three will go to the state university, where tuition and other costs will be somewhat less than for a private college or university.Both Florine and Ancil are employed, but by different employers. Each spouse had a gross income of approximately $40,000 last year. They are each covered by a group term life insurance policy for the amount of their annual income. Each spouse has designated the other spouse irrevocably as the primary beneficiary, and the three children are designated irrevocably as contingent beneficiaries.In addition to the group term life insurance coverage, Florine has a $50,000 universal life policy on her life, and Ancil has an $80,000 ordinary whole life policy ono his life. The two policies have the same beneficiary designations as the group term life insurance coverages.Florines employer provides Blue Cross /Blue Shield coverage for all employees and their families under a group contract. Ancils employer provides medical expense coverage for all employees and their families under a group comprehensive major medical expense insurance policy. Ancils group comprehensive major medical makes use of a stop-loss clause to limit Ancils out-of-pocket expenses, including the deductible, to $5,000. Both employers offer the choice of either an HMO plan or a preferred provider organization (PPO) plan to those employees and their families who prefer either of these arrangements.Ancil has recently purchased an individual disability income policy that uses a split definition of disability. The policy has both an elimination period and a probationary period. The policy has the exclusions usually found in disability income policies, including disability arising out of the insureds occupation. The policy has: (1) a presumptive disability provision, (2) a residual disability benefit clause, and (3) a change of occupation provision.Although Florine and Ancil will not be eligible for Medicare benefits for another twenty years, they are already considering how Medicare benefits can be integrated and coordinated with their medical expense insurance coverages and how to deal with their long-term care expenses that are likely to pose problems for them in their retirement years.

1. Assume that Ancils comprehensive major medical policy provides an initial deductible of $500 and an 80% coinsurance clause. How much will the insurer pay for an appendectomy involving $1,500 of hospital board-and-room charges, a $700 surgical fee, $300 for the anesthetist, and $500 for miscellaneous hospital costs?

$2,000

$2,250

$2,500

$2,750

$3,000

2. In Question 1, assume that medical complications necessitated that Ancil remain in the hospital for several days longer. As a result, total expenses were $30,500. Under these circumstances, how much would the insurer pay?

$30,500

$30,000

$27,500

$25,500

$25,000

3. Which of the following is the most likely wording of the split definition of disability used in Ancils disability income policy?

Inability to perform any occupation, followed by inability to perform his or her own occupation

Inability to perform any occupation for which qualified, followed by inability to perform his or her own occupation

Inability to perform his or her own occupation, followed by inability to perform any occupation for which reasonable suited

Inability to perform any occupation for two years, followed by inability to perform any occupation for which reasonably suited

Presumed disability for two years because of the loss of two bodily members, followed by inability to perform any occupation for which reasonable suited

4. If used in Ancils individual disability income policy, which of the following definitions of disability would be most favorable for Ancil?

Inability to perform any occupation for which fitted by education, training, or experience

Inability to perform his or her own occupation for five years, and then inability to perform any occupation for which fitted by education, training, or experience

Inability to perform his or her own occupation for two years, then inability to perform any occupation for which fitted, but, in fact, does not engage in any occupation

Inability to perform his or her own occupation

Presumed disability for two years because of loss of two bodily members, followed by inability to perform any occupation for which reasonably suited

5.

Ancils individual disability income policy has a presumptive disability provision. Which of the following accidental injuries would usually entitle Ancil to receive disability income benefits under the presumptive disability provision of his disability income policy? (1) Fracture of one leg and one arm (2) Loss of sight in both eyes (3) Loss of one leg and one arm

(1) only

(3) only

(2) and (3) only

(1), (2), and (3)

Neither (1), (2), nor (3)

6. Which of the following statements concerning the residual disability benefit clause in Ancils disability income policy is (are) likely to be correct? (1) The clause provides for the payment of the equivalent of a partial disability benefit for a few days. (2) A residual disability benefit is typically paid only after the insured recovers from total disability. (3) If Ancil returns to work after total disability with a 25% reduction in earnings because of his residual disability, he would receive 25% of the benefit to which he was entitled when he was totally disabled.

(1) only

(2) only

(1) and (2) only

(2) and (3) only

(1), (2), and (3)

7.

In which of the following ways would the rights of Florine and Ancil, as primary beneficiaries of the various life insurance policies differ from the rights of their children, who are designated as contingent beneficiaries? (1) If a primary lump-sum beneficiary is living when an insured dies, the contingent beneficiary has no legal right to any of the life insurance lump-sum death proceeds. (2) Generally, the only circumstances under which a contingent beneficiary would have any legal right to the lump-sum death proceeds would be if the primary beneficiary predeceased the insured. (3) If the primary beneficiary receives the policys death proceeds but dies before withdrawing any of the death proceeds, the contingent beneficiary would receive the death proceeds.

(1) only

(2) only

(1) and (2) only

(2) and (3) only

(1), (2), and (3)

8.

All of the following statements concerning the rights of Florine or Ancil are correct, EXCEPT:

If he or she were a revocable beneficiary, he or she would have a mere expectancy.

As an irrevocable beneficiary, he or she has a vested right.

As a policy owner, Florine or Ancil may exercise all of the ownership rights under the individual policy without obtaining the consent of the revocable beneficiary.

As a policy owner, Florine or Ancil has the right to assign the policy to whomever he or she wishes without the consent of the designated beneficiary, whether the beneficiary is revocably or irrevocably designated.

At the time of death of Florine or Ancil, the rights of a revocable beneficiary are no different that those of an irrevocable beneficiary.

9. All of the following are likely settlement options available for the life insurance death proceeds of Florines and Ancils individual policies, EXCEPT:

Cash in a lump-sum

Installments for a fixed period

Installments for a fixed amount

Extended term insurance

Life income with period certain

10. If they reach retirement age with no other sources of income, the option most appropriate for Florine and Ancil to use for the cash values of their individual life insurance policies would be which of the following?

Interest option

Installments for a fixed period

Installments for a fixed amount

Joint and last survivor income option

Additional paid-up insurance option