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CFP CARDS > Fundamentals > Flashcards

Fundamentals Flashcards

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1
Q

Who is typically an exception of the advisor act?

A

Teachers, accountant, brokers, lawyers, engineers

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2
Q

What makes up Gross Domestic Product GDP

A

Consumer spending, government spending, business spending, net imports and exports.

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3
Q

What are the three goals of monetary policy

A

Maintain long term economic growth, maintain price levels supported by the economy, maintain full employment

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4
Q

What are the four tools at the federal reserve disposal

A

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

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5
Q

What is the federal funds rate?

A

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.

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6
Q

Congress has three tools at their disposal to influence fiscal policy. What are they?

A

Change tax rates, government spending, debt management (congress goes further into debt, as it borrows more, it puts increasing pressure on interest rates)

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7
Q

What is the current ratio

A

Measures your ability to meet short term obligations. Current assets divided by current liabilities

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8
Q

What’s the housing ratio

A

Mortgage, taxes, interest, HOA expenses divided by gross income should be less than 28%

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9
Q

What is the consumer debt ratio

A

Consumer debt payments shouldn’t exceed 20% of net income

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10
Q

What is the housing debt ratio

A

Housing debt shouldn’t exceed 28% of gross income

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11
Q

Housing plus all other consumer debt ratio should be…

A

36% of gross income or less

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12
Q

How do you calculate the savings ratio

A

Your savings plus match, divided by gross income

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13
Q

What is a Federal Pell Grant

A

Needs based grant which is dependent on the EFC amount. Only students who have not earned a bachelors degree or higher qualify.

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14
Q

What is a Stafford Loan

A

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.

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15
Q

Parent Loans for Undergraduate Students (PLUS) loans are what?

A

Loan that is not needs based taken by the parents. Based on parents credit score.

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16
Q

What are Grad Plus Loans

A

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.

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17
Q

Federal Perkins loans are what?

A

Need based loans that expired in 2017.

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18
Q

What is campus based financial aid

A

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.

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19
Q

What is Income Based Repayment (IBR)

A

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.

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20
Q

What is pay as you earn repayment

A

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.

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21
Q

What type of risk is the only insurable risk?

A

Pure Risk

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22
Q

What is a Peril?

A

Perils are the actual cause of loss

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23
Q

What is a moral hazard

A

A flaw of character. Someone willing to lie in an insurance claim.

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24
Q

What is Morale hazard?

A

This is the indifference created because a person is insured. Not concerned your call will get stolen because you have insurance

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25
Q

What is physical hazard

A

This is a tangible condition that increases the cause of peril occurring.

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26
Q

What is adverse selection as it pertains to insurance

A

The tendency of persons with higher than average risks to purchase or renew insurance policies.

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27
Q

What is the subrogation clause in an insurance contract

A

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.

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28
Q

What is the securities act of 1933

A

Regulates issuance of new securities in the primary market. Requires a prospectus is provided.

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29
Q

What is the securities act of 1934

A

The SEC was born to regulate the secondary market

30
Q

What annuity has the largest lifetime payout, and what’s the catch?

A

Pure life annuity. Company doesn’t give DB.

31
Q

What is a vatical settlement

A

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.

32
Q

What does major medical not cover

A

dental and vision excluded

33
Q

What’s covered by an HSA?

A

Basically everything! Not cosmetic surgery though.

34
Q

What’s the penalty rules for using an HSA for non - qualified expenses

A

20% penalty and income tax if before age 65

35
Q

How many employees does a business have to have to offer COBRA

A

20 full time equivalent employees. If you have two part time employees, they equal one full time employee

36
Q

What are the different coverages time ranges for COBRA

A

18 months for people who have reduced hours or have normal termination. 36 months for almost any other situation (divorce, death, medicare eligibility)

37
Q

Is long term care covered by medicare?

A

Almost never. Medicare will not help with custodial care.

38
Q

What is NOT an activity of daily living?

A

Walking. The ones that are are bathing, eating, dressing, transferring, using the toilet and continence.

39
Q

LTC Costs are based on variables. What are they

A

Elimination period, daily benefit, and benefit period.

40
Q

What are the tax benefits of an LTC policy

A

premiums are tax deductible and payments from the policy are tax free.

41
Q

What’s the difference between any occupation and own occupation disability insurance

A

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.

42
Q

What are the two different benefit periods you can choose from for disability income coverage

A

short term (two years or less). Long term coverage is until normal retirement age, death or for a specified time period

43
Q

What’s the tax treatment for disability for an employee who pays for their own coverage

A

Premiums are not tax deductible, but benefit if turned on is tax free

44
Q

What is an open peril home policy

A

An open peril policy protects against all perils, except the perils that are specifically excluded from the policy.

45
Q

What’s a good way to identify basic name perils and broad name perils for home insurance

A

basic name perils (12 of them) are one word. Broad name perils (6 of them) are multiple words

46
Q

What are general exclusions for HO policies

A

movement of ground, ordinance of law, damage from water, war or nuclear hazard, power failure, intentional act, neglect

47
Q

What is section 1 coverage A and B for HO

A

Coverage A is dwelling. Coverage B is for other structures (like detached garage)

48
Q

What does section 1 coverage C cover for HO policy

A

Coverage C covers personal property. Your stuff.

49
Q

What is section 1 coverage D for home owners insurance

A

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.

50
Q

What is section 2 coverage E for HO insurance

A

Personal liability. Protects the insured against claims arising out of both bodily injury and property damage

51
Q

Section 2 coverage F of HO insurance covers what

A

Coverage F includes coverage for the medical payments to others for injuries that arise even where the insured is not liable for the injury.

52
Q

What is HO4 insurance for

A

This is renters insurance.

53
Q

What’s the difference between HO1 and HO2

A

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

54
Q

When would you use HO6 policy

A

This is insurance for a condo

55
Q

What would an HO5 policy cover

A

This takes care of the dwelling and personal property covered on an open peril basis, as opposed to named peril for HO1 and HO2

56
Q

What is HO8 coverage

A

For historical property. Covers repair rather than replacement cost.

57
Q

Who needs a PLUP?

A

Everyone needs a PLUP! Look for $1M in coverage.

58
Q

What are errors and emissions policies

A

Covers negligent acts errors and omissions for accountants, lawyers, engineers, and financial planners

59
Q

How much do you pay and how much does the employer pay for social security tax and what’s the limit

A

6.2% for employer and 6.2 for employee. Up to $147K in income

60
Q

How is medicare taxed on your income

A

1.45% of your income for both employer and employee. Another .9% if your income is in excess of 200K (single) or 250K (Joint)

61
Q

What is the reduction of benefits if you retire 3 years before full retirement age for social security

A

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

62
Q

For every year beyond full retirement age that you delay, how much does your benefit go up?

A

8% per year up to age 70. Or 2/3 of 1% per month.

63
Q

How much do you have to have in wages to have 1 quarter count towards SS

A

$1,510.

64
Q

How many total quarters of income do you need to have to be fully insured for social security

A

40 quarters

65
Q

Social security disability eligibility. How do you qualify for this

A

You must be age 31 and greater, fully insured (40 quarters) and earned 20 quarters in the last 40 quarters.

66
Q

Medicare part A does not cover

A

Custodial services (LTC)

67
Q

Medicare part b covers what

A

covers doctor visits and a lot of the physical stuff at the hospital. Does not include cosmetic surgery, hearing aids, eye exams, dental care

68
Q

What does medicare part c cover

A

Replaces Medicare part B. Covers pretty much everything except hospice care. More comprehensive coverage than part B.

69
Q

What is medicare part D

A
70
Q

Does medicare give coverage outside of the country?

A

No, not usually.

CFP CARDS (5 decks)

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