CFP Insurance Flashcards

Question

Homeowners exclusions

Answer 1

Earth movement / earthquake Flood / water damage Neglect Intentional loss Power Failure War Nuclear Ordinance or law Note: Sinkhole is covered

Answer 2

Condo coverage may include loss assessment (dues from condo association) coverage for shared portions

Answer 3

renters may be required for non-married resident's property

Answer 4

older home - think 8 letters in HISTORIC

Answer 5

Mobile Home think 7 letters in TRAILER

Answer 6

HO-1 (basic across ABCD) HO-2 (OK) Broad across ABCD HO-3 (Better) Open for A, Open 10% for B, BROAD 50% C, Open 30% D HO-5 (Best) Open for A, Open 10% for B, OPEN 50% C, Open 30% D Both are 10-50-30% B-C-D HO5 is all OPEN HO3 is BROAD for Contents Basic: WHARVES/FLT Broad: + RAF Open: any peril except specific exclusion Know percentages

Answer 7

Based on "valued" basis - insured for specified amount "agreed-value"

Answer 8

Replacement value applies ONLY to buildings ACV for personal property = replacement - depreciation

Answer 9

if insurance coverage is < 80%, THEN insurance pays ACV minus deductible, or the formula: ((insurance carried / insurance required) * the loss amount ) minus deductible = amount paid if dwelling insurance is >=80% then use ACV

Answer 10

Part A: All my fault - Liability BI/BI/PD (1 pers/3 pers/per accident) Part B: Bed (hospital) Medex Part C: Careless Uninsured (This is LIABILITY coverage not medex) Part D: Damages Collision / Other than collision (Comprehensive) Other than includes hitting bird/animal, falling objects, earthquake and flood, theft, riot

Answer 11

Named individual keeps the policy even after spouses separate. Not tied to address. Covered until new policy or 90 days following change

Answer 12

covers real property, contents, general liability not professional coverage

Answer 13

Floater for business property that provides "all risk" coverage example: cameras for photographer As opposed to “marine insurance,” which covers products when transported over water, inland marine insurance covers products, materials and equipment when transported over land—e.g., via truck or train—or while temporarily warehoused by a third party. Collisions and cargo theft are the two most frequent causes of inland marine losses.

Answer 14

Absolute liability - liable even if not at fault Always tax free covers Medex, limited disability income (short waiting period), death benefits, rehab NOT: retirement benefits or sick leave

Answer 15

Inpatient Hospital stays limited to 150 days $1632 flat deductible 1-60 1st deductible - $0 coinsurance 60-90 2nd deductible - $408 coinsurance per day 90-150 3rd deductible - $816 coinsurance per day (up to 60 lifetime reserve days) Beyond lifetime reserve days: all costs Post hospital SNF Post hospital home health Hospice for terminally ill patient covers first 3 pints of blood

Answer 16

age 65 and entitled to social security or disabled bene's receiving soc sec disability Apply 3 months prior to age 65

Answer 17

no stop loss coverage 80% after deductible covers drugs/infusions that cannot be self-administered premiums 10% higher with each 12 month delay unless on an ER plan

Answer 18

LIMITED! Think 100%-balance amt-0% First 20 days: Medicare pays 100% Days 21-100: everything over specified amount ($200 / provided in question) Days 100+ : Patient pays 100% must follow hospital stay of 3 days or more, and within 30 days not for Alzheimer's

Answer 19

Fewer than 20 exempt counts total employees, not employees in health plan EE must be participating in plan to be covered includes dental vision but not disability

Answer 20

Eligibility only - can still contribute Enrolled - can no longer contribute

Answer 21

Allowed tax free for: COBRA coverage while on unemployment Medicare premiums and OOP QUALIFIED LTC (not qualified if there is a DB > life ins) Not allowed for: Medigap premiums Also: CANNOT use FSA for LTC premiums

Answer 22

After age 65, no 20% penalty Income taxable if used for other than healthcare

Answer 23

1. Own occ 2. COLA cost of living adjustment

Answer 24

Own occ Any occ (aka Modified own occ or modified any occ) Total disability "Unmodified any occ" - unable to engage in any activity Split def - changes definition over time (common in group policies) "Loss of income" - not specific to type of disability - focuses on economic loss after an event - can be partial %

Answer 25

sight, hearing, speech both hands both feet one hand one foot can vary

Answer 26

Typically age 65 Never cut benefit period to reduce premium

Answer 27

Typically 50-60% but someone at $400k could be 30-50%

Answer 28

Disability continuance provisions Non cancelable - can keep at stated premium. more expensive. Guaranteed renewable - less expensive bc premiums can go up Conditionally renewable - beyond age 65 usually 2 year benefit only if an active employee

Answer 29

Most individual policies include this but not all group policies do not have waiver waives premiums if totally disabled and expected to last min period (ie 90 days or longer)

Answer 30

pays an amount proportional to income lost pays for same duration as maximum benefit period

Answer 31

typically 50% of total disability benefit max period 3-6 months

Answer 32

social insurance substitute = SIS benefit - social security disability rec'd

Answer 33

Individual owns contract and pays premium (SLUG-HUG) premiums paid with after tax $, benefits tax free EMPLOYER always deducts * EE owns contract, ER pays premium under bonus arrangement like section 162 premiums deductible by ER as bonus, EE takes premiums as income benefits tax free (SLUG - HUG) * EE owns contract, ER pays premium under salary continuation plan Premiums deductible by ER, paid with pre tax $ Benefits taxable (HUG - SLUG) * S CORP/Partnership premiums deductible for greater than 2% shareholders pass through premiums to EE/owners as income Benefits tax free (SLUG- HUG)

Answer 34

subject to 7.5% medical expense AND limited by age More than 50 but not more than 60 $1,760 More than 60 but not more than 70 $4,710 More than 70 $5,880 Part of premium deductible on 1040 for self-employed dependent on age

Answer 35

G. renewable (vs non can) - a continuance provision selection renewable if you can pay for it (premiums will go up on a class basis, not individual) only do this over non can to reduce premiums G. insurable - right to get more in future without proof of insurability, subject to underwriting. costs additional premium $

Answer 36

cannot provide cash at surrender now a non-qualified plan (for deductibility of premiums)

Answer 37

may be called "Traditional LTC" premiums not deductible may include medical necessity trigger to be certified by doctor

Answer 38

short term need / long term no cash value / cash value lower cost / higher cost

Answer 39

Perm lower risk insurer controls investment returns assets part of general account Not flexible lifetime payments or limited pay # of years loans OK creditor protected

Answer 40

Perm lower risk insurer controls investment returns assets part of general account More flexible Premiums and level of protection can adjust up or down

Answer 41

Think Variable investments - requires series 6 to sell Higher risk tolerance Client controls investment returns Assets in separate account if insurer goes bankrupt, keep cash value but not DB No dividends Variable life - premium fixed but cash value can decrease Variable Universal life VUL premiums and level of benefits can be adjusted up or down

Answer 42

For Universal & Variable Universal Option A - Level DB aka Type I (no cash value) Option B - Increasing DB includes cash value Type II unless specified assume Option A

Answer 43

For mortgage protection that goes down over time

Answer 44

allows for renewal at expiration through simplified renewal process if not qualified due to declining health, renewed at much higher premium

Answer 45

annual renewable or yearly renewable renewable each year at higher premium without proof of insurability DB stays level vs LEVEL Term stays flat

Answer 46

validity of contract cannot be questioned after 2 years (except fraud)

Answer 47

within two years, amount payable = premiums paid

Answer 48

automatic premium loan WHOLE LIFE only (no cash value with term)

Answer 49

allows for reinstatement within specified time period after default on premiums WITH PROOF of INSURABILITY

Answer 50

Term > Perm no evidence of insurability

Answer 51

From table, per $1000 of face amount DB 1. Cash value surrender 2. Paid up reduced amount (Not PUA). Decreased DB. 3. Extended term (same DB, shortened term) for as long as cash value will cover. Highest risk to insurer.

Answer 52

Whole life premium is waived For UL/VUL disability benefits pay charges for 1 mortality and admin expenses or 2 full premium

Answer 53

CRAPO 1. Cash 2. Reduced premiums 3. Accumulated with interest (interest portion is taxable) 4. Paid up additions. Most common, makes it like Option B/type II in universal. 5. One year term (5th div) - often used to make up / cover a policy LOAN

Answer 54

Cash Interest only - for temporary period of decision making Annuity options: Refund Pure life / single life Period certain and life - Installments for fixed period Specified income - installments for fixed amount Joint and survivor For spendthrift option>> installment of fixed amount Balance at insurance co is protected from creditors of beneficiary

Answer 55

usually for estate tax concerns / estate liquidity

Answer 56

wrong answer! since 1984 no longer qualify as insurance contracts

Answer 57

Life ins and annuity exchanges CANNOT BE DONE IF INSURED CHANGES Else L > L L > A A > A A > L (Not qualified 1035) Lindsay Lohan went to LA to go to AA she did not go to AL Life insurance and annuities can now be exchanged tax free for Qual LTC policy or Life with LTC benefit

Answer 58

For life insurance early payout Terminally ill (< 2 years to live)- like a loan against death benefit. not taxable. Chronically ill (long term care, 2 ADLs) tax free can only be used for qualified LTC services / non-reimbursed from other providers

Answer 59

only for terminally ill TRANSFER FOR VALUE sales proceeds tax free DB not included in estate but any remaining proceeds are Viatical company pays ord income tax on the gain (DB minus purchase price minus premiums paid = their basis)

Answer 60

The only time life insurance is taxed aside from viatical Look for LTCG OLD, not chronically or terminally ill , over 65 premiums paid: tax free basis ordinary income: from basis to cash value LTCG: from higher of cash surrender value (or fed income tax basis) to the net settlement proceeds

Answer 61

Cash value above cost basis = ordinary income Remainder is return of premium Basis = Premiums paid minus dividends (return of premium) Cash value = CV - loans + PUA Can make a loan taxable if amount owed exceeds what was paid in

Answer 62

Tax free to beneficiary unless transfer for value

Answer 63

life insurance contract entered into 6/21/1988 and fails to meet the "seven pay test" (excess premiums paid in first 7 years) aka SINGLE PREMIUM LIFO taxation + Penalty < 59 1/2 Taxation of distributions (loan or withdrawal) like an annuity 1. Interest first LIFO 2. 10% penalty for distribution < 59 1/2 unless disabled 3. No tax on DB 4. Dividends taxable as income if: cash, reduced premiums, or repayment of loan used to be used as huge tax shelter Non MECs: No taxation of loans or withdrawals Cash value grows tax deferred for both DB excludable from income for both

Answer 64

Rule #1 DB increases more than $150k Rules #2 any change to DB where proof of insurability / physical required MAY become a MEC

Answer 65

Policy transfers for consideration/value from one owner to another. Exceptions: I to the Insured C to a Corporation where insured is shareholder or officer D pursant to Divorce P to a business Partner of the insured transfer for value exposure: to a spouse, adult child, or irrevocable trust to keep out of estate corporate transfer from entity purchase to cross sell

Answer 66

Gift to a family member is a taxable GIFT but not a transfer for value SALE to a family member is not a taxable gift but causes transfer for value

Answer 67

Life Insurance Grandma (haha)

Answer 68

Provisions - no extra premium Riders - extra $$

Answer 69

may buy additional insurance regardless of insurability at three year intervals up to certain age

Answer 70

Doubles 2X death benefit if insured dies accidentally

Answer 71

benefits adjusted to what would have been paid at the correct age

Answer 72

Whole life - participating - pays dividends - not taxable unless interest Universal pays interest at a stated rate

Answer 73

policy financial information for new policy (Life Ins) can be used to compare across providers preliminary and final must include: Name of insurer Name and address of producer Name age and sex of proposed insured Underwriting and rating classification Initial death ben

Answer 74

national association of insurance commissioners voluntary association of admins from each state NO LEGAL power but info exchange and regulatory coordination 12 ratios monitored 4 ratios outside normal range puts co on watch list

Answer 75

Cross Sell Life Cross Sell Disability both have step up for the person who takes over the dead/deceased persons interest Entity purchase - NO X Sell

Answer 76

NONE No cross sell or entity purchase is deductible Neither disability nor life

Answer 77

TAX FREE cross sell or entity purchase life or disability

Answer 78

Entity purchase - LIFE: Sale proceeds from buyout to family of deceased are tax free but ARE IN ESTATE Disability: Sale proceeds are LTCG if a complete redemption of the owner's stock (for both entity purchase and cross sell)no

Answer 79

Employer is owner and beneficiary premiums non deductible death benefits tax free

Answer 80

For pure life/single life annuity Pros: guaranteed stream of income cannot outlive principal no residual value for estate taxes Cons: no inflation increase usually usually cannot get to principal for emergencies may die before return of principal realized with nothing left for beneficiaries

Answer 81

After 1982, LIFO (pre 1982 FIFO) - like a MEC withdrawals < 59 1/2 have 10% penalty Withdrawals/Surrender: Amounts exceeding basis subject to ordinary income tax Annuitization: Basis / Expected Return Payout (monthly $ x 12 x # of years) is the tax free Exclusion ratio Annuities tax deferred if owned by person Not tax deferred if owned by corporation/entity - ord income

Answer 82

If ER coverage exceeds $50k, EE taxed on the cost (Table I) coverage over $50k minus any amounts EE paid IF DISCRIMINATORY plan, No $50K tax free for KEY employees.

Answer 83

Pure Life other options: period certain - # payments beyond death joint with survivor - until both people die refund - remaining value refunded to estate

Answer 84

Qualified Longevity Annuity Contract funded from IRA or qualified retirement plan to avoid outliving retirement savings can also defer income tax by reducing RMDs

Answer 85

when the need is "attempt to keep up with inflation" or "keep up with market conditions"

Answer 86

Not part of $50k exemption Exemption only $2k after which EE pays tax on premiums

Answer 87

No income tax / FICA / FUTA No LTC Not HSA Medical cap $3200 Dependent care $5000 per EE - for kid under age 13 if married both spouses must work in order to qualify, unless 2nd spouse is disabled or student if earnings less than $5k, benefit limited to earnings reduces amount avail for dependent care credit

Answer 88

No LTC No FICA/FUTA

Answer 89

voluntary employees' beneficary association like an HSA but funded by ER often used for retirement ** No deferred comp

Answer 90

For execs shared premiums and benefits between ER & EE EndoRsement method - for key employees ER is owner, pays premiums EE is not a shareholder @ Death or surrender - ER keeps cash value, EE bene gets remainder Collateral ASSIGNment method - for C suite EE is owner, EE is Shareholder EE ASSIGNs policy (assigns premiums paid by corp back to corp to be paid back) @ Death or surrender - ER receives prem's paid, EE gets balance of cash value (surrender) or bene gets DB balance EE charged with Table cost

Answer 91

6 MONTHS AFTER electing part B Medigap policies are available only to individuals currently enrolled in both Medicare Part A and Part B. Persons age 65 or older may buy any available Medicare supplement policy at any time during the 6-month period after initial enrollment for Medicare B benefits.

Answer 92

EIGHT MONTHS! When the employment ends, the insured has three options: Elect COBRA coverage, which continues health insurance coverage through the employer’s plan (in most cases for only 18 months) and probably at a higher cost to you Sign up for Part B within 8 months without penalty. Individuals who enroll in Part B after 8 months may be required to pay an increased premium. Upon signing up for Part B, your Medigap open enrollment period begins