General Principles 2

Question 1

College funding Phase outs

Answer 1

Phase outs given (MFJ):

• Educational Bonds (EE Savings Bonds) ($124,800 - $154,800)
• Lifetime Learning Credit ($119K-$139K)
• American Opportunity Credit ($160K-$180K)

Question 2

Deductible housing interest

Answer 2

• All mortgages cannot exceed $750K combined (MFJ); $375K single (MFS)
• Home equity interest is only deductible if used for home renovation/improvement

Question 3

529 Keys

Answer 3

• Lump sum gift up to $75,000
• Donor can retain control
• K-12 for tuition allowed up to $10,000/yr
• Can be used to pay student loans ($10,000/student)

Question 4

Federal reserve open market operations

Answer 4

Repo - Fed buys securities - expansionary/easy money policy

Reverse Repo - Fed sells securities - Contractionary/type money policy

Question 5

Gross domestic product GDP

Answer 5

• Total dollar value of all goods and services produced within the US ONLY
• GDP counts economic activity without regard to price fluctuations
• Does not include any income generated outside the US or adjustments for foreign currencies

Question 6

Business cycle

Answer 6

Expansion, peak, recession/correction, trough, recovery/expansion

Question 7

Recession vs. Depression

Answer 7

Recession - two consecutive quarters of economic decline (negative GDP)
Depression - six consecutive quarters of economic decline (negative GDP)

Question 8

Exceptions to filing as an investment advisor

Answer 8

-Banks that are not also investment companies
-lawyers, accountants, teachers – advice is incidental
-broker/dealers or registered reps whose performance is incidental and who get no special compensation for advice
-publishers of bona fide newspapers
-those who give advice soley relating to US government securities

Question 9

Exemptions to filing as an investment advisor

Answer 9

• advisor whose only clients are insurance companies

- Family office

Question 10

How does an investment advisor register with the SEC?

Answer 10

• Initially, files that ADV part I and II with the SEC
• Pay the minimum filing fee of $150
• RIA must submit part I of ADV and schedule I anually

Question 11

Financial industry regulatory authority (FINRA)

Initial registration process

Answer 11

-The individual associates with a broker dealer
-registers with FINRA through broker/dealer on the form U-4
-takes and passes appropriate exams
Is issued a CRD number (central registration system)

Question 12

Financial industry regulatory authority (FINRA)

Key examinations/licenses

Answer 12

Series 6: Mutual funds, UITs and variables (only new UITs)
Series 7: General securities (UITs on the secondary market)
Series 63: uniform securities agent state law exam
Series 65: uniform investment advisor law exam
Series 66: Uniform combined state law exam (combines 63 and 65 exams)

Question 13

Basic components of a legal contract as applied to insurance

Answer 13

1. Offer and acceptance - two parties: offeror and acceptor
2. Consideration - something of value ($)
3. Legal object - legal in purpose
   4.Competent parties - principal must have legal capacity to execute contracts
   A. Intoxicated adults have a limited or no capacity to
   execute contracts
   B. Minors have capacity to contracts for necessities
   (food, clothing, shelter only)
4. Legal form - Contract must meet requirements

Question 14

Law of Agency (Insurance)

Answer 14

Express authority:

Implied authority:

Apparent authority:

Question 15

Express authority

Answer 15

Written, explicit direction from principal to agent

Question 16

Implied authority

Answer 16

That which the public believes the individual holds and includes signage, rate books, etc.

Implied authority is actual authority that the agent must carry out the principle’s business.

Question 17

Apparent authority

Answer 17

Arises out of negligence of the principle in allowing the agent to appear to have authority because of certain actions of the agent in the past this typically affects terminated agents. 

Question 18

Bankruptcy

Answer 18

Debts not cancelable by bankruptcy:

• student loans, government loans, child support or alimony.
• wage withholding, FICA taxes, income taxes due

Rollovers from qualified plans are exempt (unlimited), and non-rollover IRAs up to $1 million are exempt.

Question 19

Risk

Answer 19

A condition where there is a possibility of a loss.

A situation where an exposure to a loss exists.

Examples: Starting a business; buying real estate

Question 20

Peril

Answer 20

The cause of a possible loss, the event insured against perils like windstorm, fire and theft.

Question 21

Hazard

Answer 21

A condition that may create or increase the chance of loss arising from a given peril like:

1. owning a home on an earthquake fault line or
2. owning a home by a river.