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CFP > CFP INSURANCE > Flashcards

CFP INSURANCE Flashcards

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1
Q

Basis differences btwn Stock Redemption and Cross-Purchase

A

Stock redemption: no step-up
Cross-purchase: step-up

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2
Q

Split Dollar Insurance
Endorsement method vs. Collateral Assignment Method

A

Endorsement method:
•Employer is owner
•Employee is not a shareholder

Collateral Assignment method:
•Employee is owner
•Employee is a shareholder•Employee assigns the policy

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3
Q

Annuity Taxation Formula

A

Basis / Payout = Tax-free (excluded)

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4
Q

Annuity Taxation
Lump sum payouts

A

LIFO
Ord Inc + 10% penalty under 59.5

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5
Q

When must FSA be used?
Medical FSA
Dependent Care FSA

A

Medical FSA - March 15 or forfeited to company (use it or lose it)
Dependent Care FSA - Dec 31

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6
Q

What tax are FSAs subject to? FICA, FUTA, or Income tax?

A

None

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7
Q

Can FSAs be used to reimburse premiums for other health plans?

A

No

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8
Q

Can FSAs reimburse for LTC?

A

No

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9
Q

5 definitions of disability

A
  1. Own Occ
  2. Modified any Occ
  3. Split definition - own then modified
  4. Any Occ (SSI def)
  5. Loss of income
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10
Q

DI policy continuance provisions

A

Nonforfeiture: policy won’t bc canceled and premium won’t change as long as paying

Guaranteed renewable: policy won’t be canceled as long as paying premiums, but insurance company can increase premiums for entire class

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11
Q

Taxation of DI policies

A
  1. Individual owns and pays prem
    • Prem not deductible
    • Benefits tax free
  2. Employee owns policy and employer pays entire prem under bonus arrangement like Section 162
    • Prem deductible to employer, employee recognizes prem in income
    • Benefits tax free to employee
  3. Employee owns the policy and employer pays entire prem under a salary continuation plan (group plan)
    • Prem deductible to employer
    • Benefits taxable to employee
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12
Q

Dividend options

A

• Cash
• Reduce premium
• Accumulate w/ interest
• Paid-up additions
• One-yr term/5th dividend

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13
Q

LI Nonforfeiture options

A

• Cash
• Extended term
• Paid-up reduced amount

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14
Q

5 keys to MEC contracts

A
  1. Established after June 21, 1988
  2. Fails to meet 7-pay test
  3. Distributions/withdrawals taxed at LIFO
  4. Distributions under 59.5 subject to 10% penalty (if not disabled)
  5. DB tax free
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15
Q

MEC grandfather rules

A
  1. If DB doesn’t increase by more than $150k and insured has guaranteed insurability, the policy WILL NOT lose its grandfathered status
  2. If policy increases by ANY amount and insured must prove insurability, the policy MAY MEC
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16
Q

Insurance Basic Perils

A

WHARVES/FLT
Windstorm, Hail, Aircraft, Riot, Vandalism, Vehicles, Explosion, Smoke, Fire, Lightning, Theft

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17
Q

Insurance Broad Perils

A

Basic plus RAF
Rupture of a system, Artificially generated electricity, Falling objects, Freezing of plumbing

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18
Q

Insurance Excluded Perils

A

OPEN WIF

Ordinance of law, Power failure, Earthquake, Nuclear hazard, Neglect, war, Intentional Loss, Flood

19
Q

Property Loss Formula

A

Replacement cost x coinsurance % = amount of insurance required

[(Insurance carried / insurance required) x Loss] - Deductible = Amount paid by Insurance

20
Q

Risk

A

Condition of possibility of loss

21
Q

Peril

A

Cause of possible loss

22
Q

Hazard

A

Condition that may create or increase chance of loss from a given peril

23
Q

Life insurance needs analysis

Capital Utilization approach

A

Uses ALL capital to provide annuitization of needed income

24
Q

Life insurance needs analysis

Capital needs approach or capital retention

A

Factors interest only so original capital is never touched.

25
Q

Human life value

A

Amount of LI needed is based on individual’s income-earning ability. Does not take into account other resources available

26
Q

Participating vs. nonparticipating LI policy

A

• Participating: insured receives annual dividends from willful overpayment of premiums. Dividend is usually tax free bc it’s considered a return of premium

• Nonparticipating: company retains profits instead of issuing dividends

27
Q

Who can issue participating LI policies?

A

Mutual insurance companies and stock insurance companies

28
Q

Insurance rating companies and their respective grades

A

AM Best A++ - F
Standard & Poor’s AAA - CCC

29
Q

What is the only insurance rating company that provides detailed, historical data on carriers?

A

AM Best (all others just provide ratings)

30
Q

Sections of HO policy

A

A - abode/dwelling
B - backyard/buildings/other structures
C - Contents/ personal property
D - Denial of use/loss of use - provides indemnity for necessary increase in living expenses incurred to continue normal standard of living
E - Everybody wants to SUE me/personal liability -comprehensive liability insurance
F - Find me a doctor/medical payments to OTHERS, not insureds family

31
Q

HO Personal Property coverage

A

• covers contents and personal property owned or used by any insured while anywhere in the world (Boats and trailers are limited to $1k)

32
Q

Property excluded under HO - C

A

• Animals of all varieties
• motorized land vehicles (not riding mowers) and aircraft
• property of roomers, boarders, and other tenants
• property contained in an apartment regularly rented or held for rental to others by the insured

33
Q

HO Replacement cost coverage

A

• generally recommended
• provides losses will be paid at replacement cost rather than actual cash basis
• only applies to buildings

34
Q

Actual Cash Value (ACV)

A

Replacement value less depreciation

• personal property is covered for ACV

35
Q

HO - B, C, & D coverage %

A

• B - 10% of A
• C - 50% of A
• D - 30% of A

36
Q

PAP $100,000/$300,000/$50,000

A

$100k per person
$300k per occurrence
$50k property damage

37
Q

PAP coverages

A

A - liability (BI/PD)
B - medical payments (Med-pay) only covers expenses w/in 3yrs of accident
C - uninsured motorists (UM) liability protection
D - Damage to your auto

38
Q

Other than collision perils

A

• falling objects
• theft
• earthquake
• flood
• riot
• Contact w/ animals

39
Q

Medicare Skilled Nursing Home Care coverage

A

• pays 100% of first 20 days
• pays excess above $194.50/day for 21- 100 days
• no coverage after 100 days

40
Q

S Corp and Partnership taxation of DI benefits

A

Can deduct the premiums for partner or greater than 2% shareholder due to conduit income. Benefits are then excluded from taxable income bc the employee has paid the premium

41
Q

Can a 1035 exchange be done if the insured has changed?

A

No

42
Q

Difference btwn viatical settlement and life settlement

A

• viatical is for critically or terminally ill and is tax-free to insured
• life settlement is for a healthy individual generally over 65. Taxed at LTCG. (Look for LTCG answer)

43
Q

Medigap or Medicare Supplemental policy requirement

A

Must be enrolled in Medicare A and B

44
Q

What’s included in workers comp

A

• Medical expenses- without limit on time or money
• Disability income
• Death benefits payable to family
• Rehab benefits (medical and vocational)

CFP (7 decks)

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