Book 2 Flashcards
Waiver & Estoppel
Waiver - A party, by its own actions - has voluntarily relinquished a right
Estoppel - Prevents a party from asserting a right which they would be entitled to, if they misled someone (even unintentionally) who relied on their understanding
Equitable Remedies
Recession - Contract is recessed and nothing is owed - sought by insurer’s
Reformation - Contract between parties is changed to express the original intentions of the party
Tort Vocab
Negligence Per Se - Someone breaks a law that is protecting a class - like hitting a kid in a school zone
Attractive nuisance - swimming pool, attracts risk
Absolute liability / Strict liability - imposed when a person or org. is held responsible for damages
Vicarious Liability - When someone is held liable even though they did not commit the wrongdoing
Flood & Earthquake Insurance
Flood - If the Property is in a “non-preferred” flood zone - Mortgage lender will require flood insurance through the NFIP
Earthquake - Generally high deductibles (10%+), typically govt. insurance like the CEA
Inland Marine Coverage / Floater
Covers high value personal property such as rare art collection - limited by typical PP coverage. Often needs receipt or appraisal to pass underwriting.
Liability Coverage
Client’s should have as much liability coverage as their net worth - unless they are high risk earners, like doctors
PAP’s
A - Liability (per person/per accident/property damage)
B - Medical Payments
C - Uninsured Motorist Coverage
D - Coverage for auto damage (collision and comprehensive)
E - Duties After Loss
F - General provision (locations, new cars, etc)
Business Insurance
Monoline Forms - Very specific insurance for one thing
Packaged coverage - combined many monoline forms
CPP for larger businesses
BOP for small businesses
Life Insurance Needs Analysis
Multiple of salary method - easy to use, but makes a lot of assumptions
Human Life Value - Income-earning ability of the deceased , discounts changes in wages back to PV
Capital Utilization - use all the capital (calcs)
Capital retention - Do not drawdown on capital (income need / IAROR)
QLAC’s
Deferred income annuity - can buy an annuity with 25% of 401(K) balance and defer RMD’s up to age 85 usually
Health Insurance: Plan Types
- Indemnity Plans: total choice of providers without payment discrimination (also called fee-for-service plans)
- Comprehensive policies incorporate indemnity plans
- Managed Care Plans: PPOs, HMOs. EPOs, POS
- Providers paid through capitation (fee for seeing patients)
- HMO - Kaiser, no deductible and coinsurance, just co-payments
- PCP is gatekeeper
- PPO
- Groups join as preferred providers - in service is cheaper
- POS
- PCP still a gatekeeper, but can see out-of-network folk and still get some benefit
- EPO = HMO through an insurance company
Medicare Part C
HMOS
PPO
PFFS - for rural areas!
“Qualified” Long-term Care
- 30 day look-back
- 60% expected loss ratio
- Guaranteed Renewable / Non-cancellable
- if a replacement policy, time period for pre-existing conditions is waived
Partnership LTC
Can set-aside a certain number of benefits and have those still be available while qualifying for Medicaid
409(A)
Rule regarding the taxation of NQDC plans
Funded NQDC Plans
Rabbi Trusts
COLI - tax deferral on cash value growth
Promise to pay by third party - surety bond, letters of credit, and indemnity insurance
Section 83 Plans - based on future services - funded once vested
EB / SERP Plans
- EB:
- Cover any employee
- can be funded or unfunded
- only adds comp to the limits of IRC 415 plan limits
- SERP
- Covers Executives
- Usually unfunded
- Can provide benefits much greater than retirement plan
DBO Plan
Provide death benefit to the beneficiary (selected, owned, and maintained by corporation).
Usually used for someone with closely held corp. as 50+% of estate and not very liquid
83B election
Even though still subject to forfeiture, can pay taxes on current value instead of vesting value - election due within 30 days of property receipt
Cashless exercise of NQSO
Ex: Terry has NQSO for 100 shares at $20 per share, he exercises at $30 per share. Terry is currently in the 32% tax bracket. Steps below:
- Exercise cost of the NQSO will be $200 (100x$20) + Bargain element taxes $1000 x 32/share = $320 → Total tax liability of $2320
- Terry must sell enough shares to cover the total cost of the option = $2,320 / $30 = 77 shares - 23 shares remaining
ESPP’s - discount taxation
Can be sold at discount, subject to same HPR of ISO’s. If bought at discount - discount will be ordinary income at time of disposition
GTLI Non-Discriminatory Requirements
70% of all employees benefit from the plan
85% of participating employees are non-key
If discriminatory - only key employees lose the tax benefits
GTLI Non-Discriminatory Requirements
70% of all employees benefit from the plan
85% of participating employees are non-key
If discriminatory - only key employees lose the tax benefits
Section 125 Cafeteria Plan
only cash and “qualified benefits” can be offered
None of: Education assistance, LTC insurance, discounts, on-cash fringe benefits, etc.
VEBA’s
Essentially allow employer’s to fund a trust and take an immediate tax deduction - used mostly by large unions and municipalities (steel, police force, etc.)
Funded by employer - can still have access to funds post-retirement
Cannot offer same “non-qualified” items as cafeteria plans
Group health coverage non-discriminations testing
benefit at least 70% of all employees
80% of eligible employees if at least 70% employees are eligible
A class of employees considered nondiscriminatory
Once passing the above - it must pass the “benefits test” - if more benefits to HC, then that is taxable income to HCE’s
