Fundamentals Flashcards
Who is typically an exception of the advisor act?
Teachers, accountant, brokers, lawyers, engineers
What makes up Gross Domestic Product GDP
Consumer spending, government spending, business spending, net imports and exports.
What are the three goals of monetary policy
Maintain long term economic growth, maintain price levels supported by the economy, maintain full employment
What are the four tools at the federal reserve disposal
Reserve requirement banks must maintain in cash, discount rate at which banks can borrow from the fed, open market operations which is the fed buying or selling government securities, excess reserve rate is what banks must hold at the central bank (fed) on top of the required reserve account
What is the federal funds rate?
The rate at which banks borrow from each other, not borrowing from the fed. This rate is set by supply and demand for cash, not the federal reserve itself.
Congress has three tools at their disposal to influence fiscal policy. What are they?
Change tax rates, government spending, debt management (congress goes further into debt, as it borrows more, it puts increasing pressure on interest rates)
What is the current ratio
Measures your ability to meet short term obligations. Current assets divided by current liabilities
What’s the housing ratio
Mortgage, taxes, interest, HOA expenses divided by gross income should be less than 28%
What is the consumer debt ratio
Consumer debt payments shouldn’t exceed 20% of net income
What is the housing debt ratio
Housing debt shouldn’t exceed 28% of gross income
Housing plus all other consumer debt ratio should be…
36% of gross income or less
How do you calculate the savings ratio
Your savings plus match, divided by gross income
What is a Federal Pell Grant
Needs based grant which is dependent on the EFC amount. Only students who have not earned a bachelors degree or higher qualify.
What is a Stafford Loan
Simply a student loan. There are two types, subsidized and unsubsidized. Subsidized is needs based only and the government pays loan interest while you’re in school. Unsubsidized is not need based and is available to all undergrad and grad students.
Parent Loans for Undergraduate Students (PLUS) loans are what?
Loan that is not needs based taken by the parents. Based on parents credit score.
What are Grad Plus Loans
A graduate student enrolled at least half time at an eligible school in a program leading to a graduate degree or certificate. Dependent on student credit score. Begin making payments six months after you graduate or leave. Interest accrues as you go.
Federal Perkins loans are what?
Need based loans that expired in 2017.
What is campus based financial aid
Federal Supplemental Education Opportunity Grant (FSEOG) - Awarded to students with very low EFC and is needs based. OR Federal work study, which is work on or off campus to help pay tuition.
What is Income Based Repayment (IBR)
Monthly student loans repayment of 10-15% of discretionary income with remaining debt forgiven after 25 years. Stafford loans and other federal plus are eligible. PLUS loans are not.
What is pay as you earn repayment
Available if borrower has high debt to income ratio. Monthly student loan repayment of 10% of discretionary income, with remaining debt forgiveness after 20 years. Federal and grad PLUS loans eligible. Parent PLUS loans are not.
What type of risk is the only insurable risk?
Pure Risk
What is a Peril?
Perils are the actual cause of loss
What is a moral hazard
A flaw of character. Someone willing to lie in an insurance claim.
What is Morale hazard?
This is the indifference created because a person is insured. Not concerned your call will get stolen because you have insurance
What is physical hazard
This is a tangible condition that increases the cause of peril occurring.
What is adverse selection as it pertains to insurance
The tendency of persons with higher than average risks to purchase or renew insurance policies.
What is the subrogation clause in an insurance contract
The insured cannot collect a claim from the insurance company AND sue the third party and receive payment there. Can’t make a profit on insurance.
What is the securities act of 1933
Regulates issuance of new securities in the primary market. Requires a prospectus is provided.
What is the securities act of 1934
The SEC was born to regulate the secondary market
What annuity has the largest lifetime payout, and what’s the catch?
Pure life annuity. Company doesn’t give DB.
What is a vatical settlement
Insured sells life insurance policy. Insured must be terminally ill (expected to die in 24 months) or chronically ill. Proceeds not subject to income tax for insured. Purchaser incurs tax liability on DB minus whatever he paid for the policy.
What does major medical not cover
dental and vision excluded
What’s covered by an HSA?
Basically everything! Not cosmetic surgery though.
What’s the penalty rules for using an HSA for non - qualified expenses
20% penalty and income tax if before age 65
How many employees does a business have to have to offer COBRA
20 full time equivalent employees. If you have two part time employees, they equal one full time employee
What are the different coverages time ranges for COBRA
18 months for people who have reduced hours or have normal termination. 36 months for almost any other situation (divorce, death, medicare eligibility)
Is long term care covered by medicare?
Almost never. Medicare will not help with custodial care.
What is NOT an activity of daily living?
Walking. The ones that are are bathing, eating, dressing, transferring, using the toilet and continence.
LTC Costs are based on variables. What are they
Elimination period, daily benefit, and benefit period.
What are the tax benefits of an LTC policy
premiums are tax deductible and payments from the policy are tax free.
What’s the difference between any occupation and own occupation disability insurance
Any occupation is cheap- it’s saying if you can’t do ANY job, you get benefit. Own occupation is saying if you can do YOUR specific job, you get a benefit. Own occupation is the most expensive.
What are the two different benefit periods you can choose from for disability income coverage
short term (two years or less). Long term coverage is until normal retirement age, death or for a specified time period
What’s the tax treatment for disability for an employee who pays for their own coverage
Premiums are not tax deductible, but benefit if turned on is tax free
What is an open peril home policy
An open peril policy protects against all perils, except the perils that are specifically excluded from the policy.
What’s a good way to identify basic name perils and broad name perils for home insurance
basic name perils (12 of them) are one word. Broad name perils (6 of them) are multiple words
What are general exclusions for HO policies
movement of ground, ordinance of law, damage from water, war or nuclear hazard, power failure, intentional act, neglect
What is section 1 coverage A and B for HO
Coverage A is dwelling. Coverage B is for other structures (like detached garage)
What does section 1 coverage C cover for HO policy
Coverage C covers personal property. Your stuff.
What is section 1 coverage D for home owners insurance
This is loss of use. Combination of additional living expenses and loss or rental income. Loss resulting from having to live in a hotel for example.
What is section 2 coverage E for HO insurance
Personal liability. Protects the insured against claims arising out of both bodily injury and property damage
Section 2 coverage F of HO insurance covers what
Coverage F includes coverage for the medical payments to others for injuries that arise even where the insured is not liable for the injury.
What is HO4 insurance for
This is renters insurance.
What’s the difference between HO1 and HO2
HO1 only covers basic perils, and HO2 covers basic and broad perils, but both are still just named perils. Not as good as open peril
When would you use HO6 policy
This is insurance for a condo
What would an HO5 policy cover
This takes care of the dwelling and personal property covered on an open peril basis, as opposed to named peril for HO1 and HO2
What is HO8 coverage
For historical property. Covers repair rather than replacement cost.
Who needs a PLUP?
Everyone needs a PLUP! Look for $1M in coverage.
What are errors and emissions policies
Covers negligent acts errors and omissions for accountants, lawyers, engineers, and financial planners
How much do you pay and how much does the employer pay for social security tax and what’s the limit
6.2% for employer and 6.2 for employee. Up to $147K in income
How is medicare taxed on your income
1.45% of your income for both employer and employee. Another .9% if your income is in excess of 200K (single) or 250K (Joint)
What is the reduction of benefits if you retire 3 years before full retirement age for social security
You use 5/9 per month the benefit was taken early. This applies for taking the benefit up to three years early. If taken even earlier than that, the ratio is 5/12 per month
For every year beyond full retirement age that you delay, how much does your benefit go up?
8% per year up to age 70. Or 2/3 of 1% per month.
How much do you have to have in wages to have 1 quarter count towards SS
$1,510.
How many total quarters of income do you need to have to be fully insured for social security
40 quarters
Social security disability eligibility. How do you qualify for this
You must be age 31 and greater, fully insured (40 quarters) and earned 20 quarters in the last 40 quarters.
Medicare part A does not cover
Custodial services (LTC)
Medicare part b covers what
covers doctor visits and a lot of the physical stuff at the hospital. Does not include cosmetic surgery, hearing aids, eye exams, dental care
What does medicare part c cover
Replaces Medicare part B. Covers pretty much everything except hospice care. More comprehensive coverage than part B.
What is medicare part D
Does medicare give coverage outside of the country?
No, not usually.
