Concepts Flashcards
Only forms of insurance anyone is required to purchase
P&C and Health
Coinsurance provision for homeowner’s
((Amount of insurance / Cost to rebuild x 80%) x Loss)) less the Deductible
Forms of professional liability insurance
Malpractice (physical harm) and E&O (fiscal harm)
8 ISO General Homeowner’s Policy Exclusions
water, war, intentional, nuclear, neglect - power, earth, law (WWINN-PEL)
Commercial insurance primary packages
Commercial package policy (CPL) and Business owners policy (BOP)
Auto split limits e.g. 100/300/100
100/300 Bodily injury (per person/accident) and 100 Property
Auto policy structure
Liability, med payments, uninsured/underinsured, physical damage (collision and comprehensive), duties of insured
Business liability exclusions
Employees and Business Auto
HO section I
A-Dwelling, B-Other Structures (10% of dwelling), C-Personal Property (50% of dwelling), D-Loss of Use
HO section II
E-Comprehensive liability, F-Med payments (to others)
Permanent life insurance
Cash value - whole, universal, variable, variable universal
Short-term life insurance
Term
Whole life insurance
GUARANTEED premium, death benefit, cash values; insurer takes mortality and interest rate risk
Life insurance needs analysis
LIFE - L=liabilities + I=income replacement + F=final expenses + E=education funding = Total life insurance need
Universal life insurance
FLEXIBLE premium and adjustable death benefit and cash value; unbundles whole life and insured takes mortality and interest rate risk
Variable whole life insurance
built on whole life platform with cash value invested in sub-accounts - policy owner has investment risk
Variable universal life
built on universal life platform with no guaranteed death benefit and insured takes investment risk
Life insurance primary tax benefits
- death benefit is income-tax free
- earnings (in cash value) grow tax-deferred
- withdrawals tax-free up to basis (balance taxed at ordinary income)
Why not buy term insurance and invest the difference?
- cash value growth is tax-deferred
- risk is less than equities
- cash value return is similar to CDs, which is where most investors invest their taxable money
- flexibility
- cash value can grow even if disabled (waiver of premium)
- forced savings
- savings is difficult to access and this discourages spending
Joint life insurance policies
first-to-die (buy-sell, mortgage, education, donation), second-to-die (estate tax planning), surviforship policies
Education funding 3-step process
- Current cost of college is inflated
- PV of an annuity due is determined for the college years
- Sum is discounted to PV
Life insurance primary uses
replace earning power and assuring estate liquidity
3 beneficiary designations
- Per capita (default)
- per capital by generation
- per stirpes
Life insurance model regulation disclosure
illustration requirements; buyers guide before 1)sales presentation, 2)5 days pefore policy delivery; agent must idenitfy as such
What’s required to file a life insurance claim form
a certified copy of a death certificate and a claim form signed by the beneficiary
Consumer debt rule of thumb
20% or less of net monthly income
Housing costs rule of thumb
28% or less of gross monthly income
Total debt rule of thumb
36% or less of gross monthly income
5 Key Annuity Questions
- Who is the annuitant?
- What is the method of benefit payment or accumulation?
- When do benefits begin?
- How long are benefits paid?
- How are premiums paid?
3 Ways Annuity investments can be made
Fixed, variable and indexed
Annuity taxation
- 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
Annuity exclusion ratio
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.
Cash value Life insurance policy nonforfeiture options
- receive the cash value
- use cash value as a single premium to purchase a reduced amount of paidup insurance
- use cash value as a single premium to purchase extended term insurance
Medicaid and CHIP
Provide health care coverage to minorities and low incomes; administered by states.
11 transitions that cause a change in health coverage (and increase the need for financial advice
Marriage, Divorce, Death, Disability (MDDD)
Job change, Job reduced hours, Job reduced income, Move (JJJM)
30d, 26, 65
3 important health insurance acts
HIPPA, COBRA, PPACA
Cobra benefit length periods in months
18 (job loss), 29 (disability), 36 (divorce)
Medicare
federal health care program for
- persons age 65 or older,
- certain disabled persons who qualify for SSDI after 24 months, and
- anyone who has end-stage renal (kidney) disease
Medicare initial enrollment period
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.
Medicare special enrollment period
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)
Why delay signing up for Medicare part B at age 65 if still employed?
- 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. - 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.
Medicare annual general enrollment period
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
Medicare open enrollment period
October 15 through December 7; the client can make changes to their plans
Medicare 4 basic parts
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.
Medicare supplement plans
group of special policies (A-N) to cover the gaps between the cost of medical care and the amount Medicare pays
HSA
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).
What are the lowest cost medical plans?
HMOs, or possibly POS plans, are usually the lowest-cost plans.
major features to consider when evaluating a disability income policy
- disability definition (most important)
- elimination (waiting) period (time deductible)
- max monthly payment
- max benefit period
- premium
Two categories used to qualify for LTC
- Inability to perform 2 or more activities of daily living (ADL)
- Impaired cognitive ability
