CFP Insurance Flashcards
Insurable interest
Must be in place at issuance AND loss for P&C
Only issuance for Life insurance
Indemnity
only applies to P&C insurance - seek to reimburse for approx the amount lost
in life insurance, you are buying for specific amount
Aleatory contract
Applies to insurance
outcomes are random, $ spent by parties is unequal
Contract rescission
deemed null from the beginning due to fraud or misrepresentation
if someone failed to disclose info on life insurance contract for example - refund premiums and rescind contract
Collateral SOURCE
damages can be collected from insurance AND the negligent party
prohibits admission of evidence that the victim has rec’d comp from some other SOURCE
Insurance SUBrogation
Insurer takes over SUBstitute rights to sue the negligent party
Substitution of another person / group in respect to debt or insurance claim
Parts of insurance contracts
De-DICE
Declarations - specific to you, rest is boilerplate
Definitions - key terms
Insuring agreements - promises of company
Conditions - duties of BOTH parties
Exclusions - won’t pay
Intentional vs unintentional tort
Tort: wrongful act other than breach of contract for which civil action may be brought
Intentional infringement (assault, libel, slander)
Unintentional - negligence or carelessness
Negligence: Negligence per se
violates a statute
crosswalk, school zone
In a tort case, a defendant who violates a statute or regulation without an excuse is automatically considered to have breached their duty of care and is therefore negligent as a matter of law.
Negligence: Absolute liability
workers comp, wild animals
intent does not matter, not entitled to any defence
hazardous conditions resulting in loss
Negligence: Strict liability
product / manufacturers
intent does not matter
can use due diligence as defense
Negligence defense:
Comparative negligence
if injured party ALSo had some negligence that doesn’t defeat the claim but may reduce damages
A 20% negligent, B 80% negligent
Think, COMPARED to the other person, i hardly did anything wrong
Contributory vs Comparative varies by state
Negligence defense:
Contributory negligence
ANY negligence on part of the injured party completely defeats the claim
Jaywalking, drunk driving
Contributory vs Comparative varies by state (VA is contributory)
For example, if Haley walks into a crosswalk without looking and Debbie fails to stop at the crosswalk, and a jury finds Debbie 99% at fault and Haley 1% at fault, Haley would not be allowed to recover damages under contributory negligence.
Negligence defense:
Last clear chance
The last clear chance rule was created by judges to ease the harsh effects of contributory negligence. Judges in states that followed the contributory negligence rule believed that negligent plaintiffs should still be able to get some compensation in certain situations, rather than come away with nothing.
A negligent plaintiff must prove that, as between the plaintiff and the defendant, the defendant was the one who had the last opportunity to change course and avoid injuring the plaintiff.
example: road rage
Life insurance needs analysis - 2 approaches
Needs analysis - based on survivors needs
Capital utilization - how much income do i need to cover - nothing left over at end
Capital needs approach aka capital retention - interest only
Human life value - how much income was i earning
Negligence defense:
assumption of risk
skiing, stock car races
Negligence: Attractive nuisance
swimming pool, vacant lot
Negligence: Vicarious liability
principals are responsible for agents
Calc life insurance need using capital retention
Annual need / (Growth rate - inflation rate) = total amount
PLUS
Beginning of year 1 money
$36k / 3% = $1.2M + 36K = $1,236,000
Participating policy
pays a dividend
from higher than expected return
or
lower than expected mortality / expenses
originally only mutual insur co’s (owned by policyholders) but stock insurance co’s (owned by stockholders) may offer as well
nonparticipating policy profits are retained for shareholders
Insurance ratings
A.M. Best (Think which is BEST)
A++ to F
(other is S&P)
Only AM Best provides detailed historical data on carriers. The others may just provide ratings.
Law of agency (insurance)
Types of Authority
no presumption that one person can legally act as agent for another
ability of an agent to act and bind the principal (insurer) comes from three sources:
1. Express authority - written, explicit direction (Agency agreement (contract)
2. Implied authority - what public believes the agent holds based on signage, rate books, etc
3. Apparent authority - negligence on part of principal / insurer in allowing the agent to APPEAR to have the authority (often w/terminated agents)
Sections of Homeowners Policy
Section I
A - Abode - dwelling and attached structures
B - Buildings - detached structures
C - Contents - Boats/Trailers limited to $1k, no motorized vehicles or aircraft except lawn mower, no animals/birds/fish, no renters property, no personal property in renters space
D - Days Inn - loss of use
Section II
E - Enemies - comprehensive liability
F - First Aid - medical payments
Basic vs Broad vs Open coverage
BASIC
WHARVES / FLT
windstorm/hail/aircraft/riot, vandalism, vehicles, explosion, smoke, fire, lightning, theft
BROAD + RAF
riot, artificially generated electricity, falling objects, freezing pipes
OPEN - best all forms not excluded
Homeowners exclusions
Earth movement / earthquake
Flood / water damage
Neglect
Intentional loss
Power Failure
War
Nuclear
Ordinance or law
Note: Sinkhole is covered
HO-6
Condo coverage
may include loss assessment (dues from condo association) coverage for shared portions
HO-4
renters
may be required for non-married resident’s property
HO-8
older home - think 8 letters in HISTORIC
HO-7
Mobile Home
think 7 letters in TRAILER
HO-2 vs HO-3 vs HO-5
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
Personal Article Floater (PAF) Valuation
Based on “valued” basis - insured for specified amount
“agreed-value”
Valuation for homeowner’s loss
Replacement value
applies ONLY to buildings
ACV for personal property = replacement - depreciation
Property Loss Calculation
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
Auto policy sections
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
Covered individuals on auto policy with a divorce
Named individual keeps the policy even after spouses separate. Not tied to address.
Covered until new policy or 90 days following change
Commercial insurance
Business Owners Policy
covers real property, contents, general liability
not professional coverage
Inland marine insurance
Business policy
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.
Workers comp coverage /tax
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
Medicare Part A
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
Medicare eligibility
age 65 and entitled to social security
or
disabled bene’s receiving soc sec disability
Apply 3 months prior to age 65
Medicare Part B
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
Medicare Part B
SNF coverage
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
COBRA employees
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
HSA and Medicare
can you contribute to HSA?
Eligibility only - can still contribute
Enrolled - can no longer contribute
HSA and medical premiums
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
HSA withdrawals penalty for non medical expenses
After age 65, no 20% penalty
Income taxable if used for other than healthcare
Most important aspects of disability policy
- Own occ
- COLA cost of living adjustment
