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CFPE 501: Financial Planning Process & Insurance > Concepts > Flashcards

Concepts Flashcards

1
Q

Only forms of insurance anyone is required to purchase

A

P&C and Health

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2
Q

Coinsurance provision for homeowner’s

A

((Amount of insurance / Cost to rebuild x 80%) x Loss)) less the Deductible

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3
Q

Forms of professional liability insurance

A

Malpractice (physical harm) and E&O (fiscal harm)

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4
Q

8 ISO General Homeowner’s Policy Exclusions

A

water, war, intentional, nuclear, neglect - power, earth, law (WWINN-PEL)

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5
Q

Commercial insurance primary packages

A

Commercial package policy (CPL) and Business owners policy (BOP)

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6
Q

Auto split limits e.g. 100/300/100

A

100/300 Bodily injury (per person/accident) and 100 Property

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7
Q

Auto policy structure

A

Liability, med payments, uninsured/underinsured, physical damage (collision and comprehensive), duties of insured

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8
Q

Business liability exclusions

A

Employees and Business Auto

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9
Q

HO section I

A

A-Dwelling, B-Other Structures (10% of dwelling), C-Personal Property (50% of dwelling), D-Loss of Use

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10
Q

HO section II

A

E-Comprehensive liability, F-Med payments (to others)

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11
Q

Permanent life insurance

A

Cash value - whole, universal, variable, variable universal

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12
Q

Short-term life insurance

A

Term

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13
Q

Whole life insurance

A

GUARANTEED premium, death benefit, cash values; insurer takes mortality and interest rate risk

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14
Q

Life insurance needs analysis

A

LIFE - L=liabilities + I=income replacement + F=final expenses + E=education funding = Total life insurance need

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15
Q

Universal life insurance

A

FLEXIBLE premium and adjustable death benefit and cash value; unbundles whole life and insured takes mortality and interest rate risk

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16
Q

Variable whole life insurance

A

built on whole life platform with cash value invested in sub-accounts - policy owner has investment risk

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17
Q

Variable universal life

A

built on universal life platform with no guaranteed death benefit and insured takes investment risk

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18
Q

Life insurance primary tax benefits

A
  1. death benefit is income-tax free
  2. earnings (in cash value) grow tax-deferred
  3. withdrawals tax-free up to basis (balance taxed at ordinary income)
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19
Q

Why not buy term insurance and invest the difference?

A
  1. cash value growth is tax-deferred
  2. risk is less than equities
  3. cash value return is similar to CDs, which is where most investors invest their taxable money
  4. flexibility
  5. cash value can grow even if disabled (waiver of premium)
  6. forced savings
  7. savings is difficult to access and this discourages spending
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20
Q

Joint life insurance policies

A

first-to-die (buy-sell, mortgage, education, donation), second-to-die (estate tax planning), surviforship policies

21
Q

Education funding 3-step process

A
  1. Current cost of college is inflated
  2. PV of an annuity due is determined for the college years
  3. Sum is discounted to PV
22
Q

Life insurance primary uses

A

replace earning power and assuring estate liquidity

23
Q

3 beneficiary designations

A
  1. Per capita (default)
  2. per capital by generation
  3. per stirpes
24
Q

Life insurance model regulation disclosure

A

illustration requirements; buyers guide before 1)sales presentation, 2)5 days pefore policy delivery; agent must idenitfy as such

25
Q

What’s required to file a life insurance claim form

A

a certified copy of a death certificate and a claim form signed by the beneficiary

26
Q

Consumer debt rule of thumb

A

20% or less of net monthly income

27
Q

Housing costs rule of thumb

A

28% or less of gross monthly income

28
Q

Total debt rule of thumb

A

36% or less of gross monthly income

29
Q

5 Key Annuity Questions

A
  1. Who is the annuitant?
  2. What is the method of benefit payment or accumulation?
  3. When do benefits begin?
  4. How long are benefits paid?
  5. How are premiums paid?
30
Q

3 Ways Annuity investments can be made

A

Fixed, variable and indexed

31
Q

Annuity taxation

A
  • Withdrawals (of earnings) taxable as ordinary income using LIFO, and if prior to age 59 1/2 10% tax penalty
  • Annuitized payments partially taxable using exclusion ratio
32
Q

Annuity exclusion ratio

A

The ratio that the total investment in annuity bears to the total expected return (payments x months) to determine the amount of payment excluded from taxes.

33
Q

Cash value Life insurance policy nonforfeiture options

A
  1. receive the cash value
  2. use cash value as a single premium to purchase a reduced amount of paidup insurance
  3. use cash value as a single premium to purchase extended term insurance
34
Q

Medicaid and CHIP

A

Provide health care coverage to minorities and low incomes; administered by states.

35
Q

11 transitions that cause a change in health coverage (and increase the need for financial advice

A

Marriage, Divorce, Death, Disability (MDDD)
Job change, Job reduced hours, Job reduced income, Move (JJJM)
30d, 26, 65

36
Q

3 important health insurance acts

A

HIPPA, COBRA, PPACA

37
Q

Cobra benefit length periods in months

A

18 (job loss), 29 (disability), 36 (divorce)

38
Q

Medicare

A

federal health care program for

  1. persons age 65 or older,
  2. certain disabled persons who qualify for SSDI after 24 months, and
  3. anyone who has end-stage renal (kidney) disease
39
Q

Medicare initial enrollment period

A

It’s the three months before the 65th birthday month, the birth month, and three months after the birth month for a total of 7 months.

40
Q

Medicare special enrollment period

A

If employed past age 65 may still enroll in Part A when they turn 65 ( no cost) and enroll in Part B when retire (within 8 months after the employer coverage ends)

41
Q

Why delay signing up for Medicare part B at age 65 if still employed?

A
  1. need to pay Part B and C premiums and no benefit since Medicare would be secondary for paying
    claims if there is employer-based coverage.
  2. the window for obtaining a guaranteed-issue Medicare supplement policy opens giving the client eight months to purchase a policy. If no policy is purchased during this time frame, the client would need to go through the underwriting process to qualify for a policy.
42
Q

Medicare annual general enrollment period

A

for Part A and Part B between January 1 and March 31, with coverage taking effect on July 1. The penalty for signing up late is 10% per year of delay and the penalty is permanent

43
Q

Medicare open enrollment period

A

October 15 through December 7; the client can make changes to their plans

44
Q

Medicare 4 basic parts

A

Part A - in-hospital expenses (in-patient expenses)
Provided to people without a premium (10 years or more of medicare contributions), but there are deductibles and copayments.

Part B - physician’s (outpatient expenses).
Individuals with incomes above certain threshold amounts pay higher Medicare Part B premiums. For 2019, the annual deductible for Part B is $185.

Part C (Medicare Advantage Plan) - four employer type plans - program alternatives (similar to group plans offered by employers)
Medicare HMOs, Medicare PPOs, private fee-for-service plans, and the special needs plans. Additionally, Medicare offers a Medical Savings Account (MSA) option. These plans are offered by private insurance companies. Two differences between Medicare Advantage Plans and most group plans are that Medicare Advantage Plans often include dental, hearing, and vision coverage, and premiums are subsidized by Medicare.

Part D - prescription drug coverage. A factor that determines the costs of the drugs and copayments is the tier in which a drug is classified. There are five tiers: two generic drug tiers, two name brand drug tiers, and one
specialty drug tier that may require preauthorization.

45
Q

Medicare supplement plans

A

group of special policies (A-N) to cover the gaps between the cost of medical care and the amount Medicare pays

46
Q

HSA

A

The 2019 maximum annual contribution to an HSA is
$3,500 for individuals and $7,000 for family coverage (age 55 but under age 65 may make catch-up contributions of $1,000).

47
Q

What are the lowest cost medical plans?

A

HMOs, or possibly POS plans, are usually the lowest-cost plans.

48
Q

major features to consider when evaluating a disability income policy

A
  1. disability definition (most important)
  2. elimination (waiting) period (time deductible)
  3. max monthly payment
  4. max benefit period
  5. premium
49
Q

Two categories used to qualify for LTC

A
  1. Inability to perform 2 or more activities of daily living (ADL)
  2. Impaired cognitive ability

CFPE 501: Financial Planning Process & Insurance (2 decks)

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