Book 2

Question 1

Waiver & Estoppel

Answer 1

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

Question 2

Equitable Remedies

Answer 2

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

Question 3

Tort Vocab

Answer 3

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

Question 4

Flood & Earthquake Insurance

Answer 4

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

Question 5

Inland Marine Coverage / Floater

Answer 5

Covers high value personal property such as rare art collection - limited by typical PP coverage. Often needs receipt or appraisal to pass underwriting.

Question 6

Liability Coverage

Answer 6

Client’s should have as much liability coverage as their net worth - unless they are high risk earners, like doctors

Question 7

PAP’s

Answer 7

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)

Question 8

Business Insurance

Answer 8

Monoline Forms - Very specific insurance for one thing

Packaged coverage - combined many monoline forms

CPP for larger businesses

BOP for small businesses

Question 9

Life Insurance Needs Analysis

Answer 9

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)

Question 10

QLAC’s

Answer 10

Deferred income annuity - can buy an annuity with 25% of 401(K) balance and defer RMD’s up to age 85 usually

Question 11

Health Insurance: Plan Types

Answer 11

• 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

Question 12

Medicare Part C

Answer 12

HMOS

PPO

PFFS - for rural areas!

Question 13

“Qualified” Long-term Care

Answer 13

• 30 day look-back
• 60% expected loss ratio
• Guaranteed Renewable / Non-cancellable
• if a replacement policy, time period for pre-existing conditions is waived

Question 14

Partnership LTC

Answer 14

Can set-aside a certain number of benefits and have those still be available while qualifying for Medicaid

Question 15

409(A)

Answer 15

Rule regarding the taxation of NQDC plans

Question 16

Funded NQDC Plans

Answer 16

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

Question 17

EB / SERP Plans

Answer 17

• 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

Question 18

DBO Plan

Answer 18

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

Question 19

83B election

Answer 19

Even though still subject to forfeiture, can pay taxes on current value instead of vesting value - election due within 30 days of property receipt

Question 20

Cashless exercise of NQSO

Answer 20

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:

1. Exercise cost of the NQSO will be $200 (100x$20) + Bargain element taxes $1000 x 32/share = $320 → Total tax liability of $2320
2. Terry must sell enough shares to cover the total cost of the option = $2,320 / $30 = 77 shares - 23 shares remaining

Question 21

ESPP’s - discount taxation

Answer 21

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

Question 22

GTLI Non-Discriminatory Requirements

Answer 22

70% of all employees benefit from the plan

85% of participating employees are non-key

If discriminatory - only key employees lose the tax benefits

Question 22

GTLI Non-Discriminatory Requirements

Answer 22

70% of all employees benefit from the plan

85% of participating employees are non-key

If discriminatory - only key employees lose the tax benefits

Question 23

Section 125 Cafeteria Plan

Answer 23

only cash and “qualified benefits” can be offered

None of: Education assistance, LTC insurance, discounts, on-cash fringe benefits, etc.

Question 24

VEBA’s

Answer 24

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

Question 25

Group health coverage non-discriminations testing

Answer 25

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