Fundamentals & Insurance - Financial Statements & Analysis _ Education Planning _ Principles of Insurance Flashcards
Liquidity Ratios
Current Ratio = Current Assets / Current Liabilities
Emergency Fund = Current Assets / Monthly Non-discretionary Expenses
** combined fixed and variable expenses is a substitute for non-discretionary expenses
Debt Ratios
Housing 1 (28% Ratio) = Monthly Housing Costs [PITI] / Monthly Gross Income
Housing 2 (36% Ratio) = [Monthly Housing Costs (PITI) + All Other Recurring Debt Payments] / Monthly Gross Income
Adjustable Rate Mortgage
appropriate when client’s time in property will be short (1-3 yrs)
A 2/6 ARM means interest rate cannot increase more than 2% per year or 6% during the loan term
Savings Ratio
Annual Savings / Annual Gross Income
Benchmarks
10-12% (before age 32)
20-25% (age 45-50)
Rate of Return on Investments (ROI)
(Ending Investments - Beginning Investments - Savings - Gifts Received) / Average Invested Assets
Average Invested Assets = (Beginning Investments + Ending Investments) / 2
** compare w/ appropriate benchmark based on client’s age and RT
** provides insight on likelihood to achieve goals
What determines the Expected Family Contribution (EFC) for financial aid?
size of family, number of family members in college at the same time, income, assets, unusual financial burdens such as medical bills and many others
Tuition Cost of Attendance - EFC = Financial Need
Student considered independent if:
- Over age 23
- Married
- Working on Masters or Doctorate
- They have legal dependents other than a spouse
- US armed forces veteran
What financial aid programs are need based versus non-need based?
Need based loans
- Federal Pell Grant (dependent on EFT amount, undergrad only)
- Subsidized Stafford
- Federal Perkins (expired 2017)
- Federal Supplemental Education Opportunity Grant (FSEOG), campus-based aid
Non-need based loans
- Unsubsidized Stafford (grad and undergrad students)
- Parent Loans for Undergraduate Students (PLUS)
What are features of the UGMA / UTMA?
asset of the child
taxation of unearned income (interest, dividends, capital gains) may be subject to the kiddie tax
if child is less than 19, then unearned income may be taxed using the parental tax brackets
full-time student age 23 or less is subject to kiddie tax rules
UTMA can include real estate, UGMA cannot
** $2,200 is kiddie tax income threshold
What is the Lifetime Learning Credit tax credit amount?
20% of up to $10,000 in qualified expenses per year (fees paid directly to an eligible education institution)
the lifetime maximum “Per Family” is $2,000 per year
can be claimed for an unlimited number of years
What is the American Opportunity Tax Credit?
applies to tuition and fees for 4 years of post-secondary education
100% of 1st $2,000 in qualified expenses
25% of 2nd $2,000 in qualified expenses
maximum “Per Student” is $2,500/year
“per student” credit based on number of dependent students on the family’s tax return
What is an important consideration for 529 Plan distributions relative to American Opportunity Tax Credit or Lifetime Learning Credit use in the same year?
An individual may claim an American Opportunity Tax Credit or Lifetime Learning Credit in the same year as a distribution from a 529 Plan, just not for the same dollars attributed to expenses.
What are important considerations for claiming the American Opportunity Tax Credit or Lifetime Learning Credit?
Individual may not claim both for the same child in the same year.
Individual may not use for the same expense paid by a qualified tuition program.
Individual may use either in the same year a distribution from a qualified tuition plan, just not the same expenses.
What amount of Employer Education Assistance is excluded from income per year?
any benefit or reimbursement is not included in income up to $5,250
Summary of Qualified Education Expenses
There are four different types of risk. What is the only insurable type of risk?
Pure Risk = a chance of loss or no loss (e.g., death, auto accident, house fire); THE ONLY INSURABLE RISK
Speculative Risk = a chance of profit, loss or no loss; generally voluntary and not insurable
Subjective Risk = differs based upon an individual’s perception of risk
Objective Risk = does not depend on an individual’s perception, but is measurable and quantifiable; measures the variation of an actual loss from expected loss
