AD Banker Comprehensive Practice Exam

What is true about a policy that pays for room and board expenses on an indemnity basis?

1. The policy pays a stated amount per day in the hospital with no limit regardless of the number of days

2. The policy pays a specified, pre-established amount per day for a maximum number of days

3. The policy pays a percentage of the total cost per day in the hospital up to 30 days

4. The policy pays only a percentage of what is considered to be usual, customary, and reasonable

The correct answer is: The policy pays a specified, pre-established amount per day for a maximum number of days

A policy that pays for room and board expenses on an indemnity basis provides benefits that are structured as a specified, pre-established amount per day, but it typically also includes a maximum number of days for which benefits can be received. This means that the insured knows exactly how much they will receive each day they are in the hospital, allowing for better financial planning. Importantly, even though the payment is made based on the number of days covered, there is a limit on how long the benefits will be paid out, which helps the insurer manage risk and potential payout costs. In contrast, other options do not accurately describe indemnity policies. For instance, a policy paying a stated amount per day with no limit offers an unrealistic scenario, as most policies will have caps to avoid excessive payouts. Similarly, a policy that covers only a percentage of the total cost or what is usual and customary is more aligned with expense-based reimbursement policies, rather than indemnity coverage, which provides a set daily benefit without regard to the actual expenses incurred.