CFP

Question 1

4 elements of insurance (HFMC)

Answer 1

Homogenous units, Fortuitous, Measurable, Cannot be catastrophic to insurance co

Question 2

5 definitions of disability insurance (OMOAL)

Answer 2

own occupation, modified, own then modified, any occupation (SS), loss of income

Question 3

Periodic vs. Lump sum annuities

Answer 3

Periodic = payout/basis is tax free. Lump sum = LIFO, 10% if before 59.5yo

Question 4

6 life insurance payouts (CPRPSI)

Answer 4

Cash, Pure life, Refund, Period certain, Specified income, Interest only

Question 5

Tax Basis - Buy/sell stock redemption vs. cross-purchase

Answer 5

Stock redemption - NO step up; cross-purch gets a step up

Question 6

1035 Life Insurance/Annuity Exchanges (1 is not allowed!)

Answer 6

CANNOT exchange tax-free: Annuity –> Life Insurance

Question 7

3 Nonforfeiture clause options when policy lapses for nonpayment (CPE)

Answer 7

1. Cash
2. Paid up reduced amount (less whole life insurance coverage)
3. Extended term (cash out then buy term life)

Question 8

MEC 1988 - 4 elements

Answer 8

Designed to not be a tax shelter for favorable CSV withdrawals (these are normally taxed to extent withdrawal is greater than premiums paid)

1. LIFO for withdrawals
2. 10% pen for under 59.5yo
3. Death benefit still tax free
4. 7-pay test (based on if the premium is above the threshold as if the total benefit were to be distributed in 7 equal payments)

Question 9

Exclusion for employer fringe benefits paid for group term life insurance; and formula for tax excludable amount

Answer 9

First $50K is excluded THEN

[investment/expected return]*excess over 50K is considered return of capital (tax-free)

Question 10

5 elements of COBRA (coverage, term, required, deadline, etc)

Answer 10

1. allows coverage 18-36 months (36 months in event of death)
2. employee, spouse, and dependents covered
3. does not cover termination by violation of the law
4. 20+ employees requires employer to provide coverage
5. 102% premium allowed
6. deadline is within 60 days
7. Covers death, divorce, resignation, involuntary termination

Question 11

8 Homeowners insurance forms

Answer 11

1. HO-1 - basic (10 perils WHARVESSVF)
2. HO-2 broad (10 + RAFF)
3. HO-3 special (covers unless specifically excluded) or typically flood/earthquake
4. HO-4 renters
5. HO-5 comprehensive (HO-3+)
6. HO-6 condo
7. HO-7 mobile home
8. HO-8 old home

Question 12

Formula for Insurance required in coinsurance arrangement AND formula for insurance payment if that is not met

Answer 12

[insurance carried/insurance needed]*loss - deductible = amt paid by ins co

**insurance needed is coinsurance * replacement cost!!!!!

Question 13

6 sections of homeowners insurance (DDPLLM)

Answer 13

1. dwelling
2. detached
3. personal
4. loss of use
5. liability
6. medical

Question 14

6 ADLs for long term care - 90 days

Answer 14

1. bathing
2. feeding
3. from bed to chair
4. bathroom
5. continence
6. dressing

Question 15

HSA

Answer 15

1. if enrolled in medicare, NOT eligible for HSA contributions

Question 16

Taxable income for death benefit included in qualified plan

Answer 16

CSV - investment (including insurance)

Question 17

IRA contribution deductibility requirements

Answer 17

1. 5500 with 1000 catch up age 50+
2. MFJ phase out 189K-199K
3. 457 not considered active participant

Question 18

Donee’s adjusted basis

Answer 18

• In event of death = step up to FMV

- Regular gift of appreciated property - C/O basis plus portion of gift tax paid

Question 19

How much needed to fund retirement?

Answer 19

Step 1. solve for FV for 1 year’s worth of retirement at inflation rate
Step 2. solve for PV using 1 year at the inflation adjusted rate (step 1 becomes the PMT amount)
Inflation adjusted rate = [1-inv/1-infl]-1100