Insurance Flashcards
1
Q
FSA Salary Reductions
A
- No FICA / FUTA
- Must spend by March 15th
- $5,000 max
- No max for amount of kids
2
Q
Gain at surrender
A
Cash Surrender - Investment in contract
Investment in contract = ( premiums paid - div rec. - outstanding loans and withdraws)
Example:
50k premiums paid
10k Div Rec
30k loan
Investment in contract = 50-10-30 = 10k Investment in contract
Cash at surrender = 15k - 10k = 5k
3
Q
Declarations Page
A
- Person
- Property
- Activity
- Insurance provided
PP + AI = Declarations Page
4
Q
Insuring Agreement
A
- Section that promises to pay for loss
- Legally binding arrangement
5
Q
Insurance Contract Basis Formula
A
Basis = premiums paid - dividends received - outstanding loans or withdraws
6
Q
Gain at surrender
A
Cash surrender = investment in the contract (basis)
7
Q
FSA
A
- Max salary reduction dependent care = $5,000
- Reimbursement = $2,750
- NO SELF EMPLOYED
- NOT subject to payroll taxes
8
Q
Non Forfeiture Option that could cause delay?
A
- Cash at surrender value
- 6 Month delay
- PREVENT RUN ON BANKS
9
Q
Residual Disability
A
- Inability to perform one or more duties of your occupation
- Inability to perform these duties as often as before
- Loss of significant percentage of your pre-disability income
10
Q
$75,000 CV
1. What amount do you receive at surrender?
- What amount of distribution is taxable?
A
- Cash value - loan
75,000 - 30,000 = 45,000 - Premiums paid - dividends
60,000 - 10,000 = 50,000 basis
75,000 - 50,000 = $25,000
11
Q
Jay 57 YR Old Employee Provided $250,000 Group Life
A
Jays Coverage .20 per 1,000
Table 1 Rate .43 per 1,000
What amount is included in Jay’s income?
Monthly Cost .43 x 200 = $86
Contribution .20 x 250 =$50
$86-$50 = 36 x 12 = $432
12
Q
Life Settlement Example
A
Mr. Golden bought a $1,000,000 life policy 10 years ago and paid $150,000 in premiums.
CV = $175,000 cost over 10 years was $10,000
Sold policy for $400,000 what are tax implications?
$150,000 - $10,000 = $140,000 BASIS
$400,000 - $140,000 = $260,000 Income
$175,000 - $150,000 = $25,000 ordinary income
$260,000 - $25,000 = $235,000 CAPITAL GAIN
13
Q
LTC Deduction Dollar Amount Limits:
A
Ages 51-60 = $1,630
Ages 61-70 = $4,350
14
Q
Medicare
A
- Basic hospital insurance
- Supplementary medical insurance
15
Q
Disability Income Insurance Terminates For:
A
- Insured returned to work
- Maximum benefit period has been reduced
16
Q
Fully Insured Group Health Plan
A
Benefits from comprehensive medical expense plan are ALWAYS tax FREE to the EmployEE
17
Q
Declarations Page
A
Names
Property
Amount of coverage
DEC = NPA
NAMES
PROPERTY
AMOUNT of COVERAGE
18
Q
Reformation
A
Change contract after the fact
Fails to meet the intention of the two parties - can be amended
19
Q
Adhesion
A
You take the contract as is or not at all
20
Q
Insurance Definitions
A
Indemnity = life insurance make one WHOLE
Adverse selection = those who need this contract will BUY it
Unilateral = Only one party is legally obligated
Aleatory = One party pays more than the other UNEQAL
21
Q
Vicarious Liability
A
Right to collect from third parties who are responsible for causing the loss
22
Q
Defenses
A
- Assumption - skiing
- Contribute - jay walking
- Comparative - A. 20% B. 80%
- Last Clear Chance - road rage
23
Q
Cafeteria Plan Benefits
A
- Cash benefit
- Group life term insurance
- Accident & health benefits
24
Q
Guaranteed Renewable
A
- Can keep policy
- Premium MAY go UP
I guarantee you the premium MAY go up
25
"Donut Hole"
1. Medicare prescription drugs - PART D
2. Donut hole limits what the drug plan covers for prescriptions up to specific $ amount
26
Skilled Nursing Care Involves:
1. Medically required care
2. 24 hour oversight
3. Provided by licensed medical practitioner
27
Provisions to allow life insurance company to refuse to make payment on a policy?
1. Incontestable clause
2. Suicide clause
28
Tax Benefits of Premiums Paid on a LTC Policy ?
1. Must be noncan or guaranteed renewable to be deductible
2. Premiums paid are deductible but limited based on age
29
Reasons to fund a business with life insurance?
1. Provides sufficient assets for the buyer to perform contract
2. Gives agreement efficiency "no money no deal"
3. Strengthens commitment of buyer
30
Casualty Losses
1. Generally not deductible if personal
2. Reimbursements reduce loss amount
31
HSA Triple Tax Advantage
1. Above line deduction
2. Tax deferred growth
3. Tax free distributions
32
HSA Rollover Options
Indirect rollover from MSA to HSA - one per year
Direct HSA to HSA - unlimited
Direct IRA to HSA rollover - one time only
33
Dynamic Risk
Core risk resides in the change in environment causes by the changing human condition
34
If insured forgets to pay the premium or decides to end the contract, the grace period provides how many days to pay premium without forfeiting contractual rights?
31 DAYS
35
What business insurance policies are tax deductible by the business?
1. Workers comp
2. Unemployment
3. Commercial umbrella insurance
4. A BOP policy
36
Aleatory
Unequal out come is uncertain
37
Waiver Provisions
Prez, VP, Secretary may alter contract. Must be accepted as is.
"Waiving president, VP, Secretary Alter contract. Accept as is"
38
Unilateral
Only 1 party is bound. The insured makes no promise
"Unicycle"
39
Adhesion
Contract is accepted as is. Not negotiated
40
Length of time to be considered fully insured to qualify for disability?
40 Quarters
41
Conditional Receipt
1. Sets forth certain terms of temporary life insurance converge
2. Will not be issued without a completed application and payment of initial premium
42
Workers Comp Example:
Employer is protected only from employee from filing suit if they accepted workers comp. Family members can still sue
43
Max deductible contribution in a target benefit plan?
1. Max 25%
2. Aggregate eligible compensation of all covered employees
44
Endorsement Method
Pay HIGHER of cash value or premiums paid
45
Self Insurance
Risk retention
46
FSA
1. Limited to $2,750
2. No FICA & FUTA
3. Extra 2.5 months to spend after year end
47
Code Section 125
1. Not a group plan
2. Not deductible by employer
3. Flexible spending account funded by employee
4. Part of cafeteria plan
48
HRA
1. Only C corp can use it
2. Soley employer funded
3. Reimburses employee for substantial medical expenses
49
Medical Supplement / Medigap Policies
1. Reimbursement for insures hospital expenses
2. Reimbursement for 20% share of (Medicare part B)
50
COBRA Coverage
1. Covers group dental & vision
2. Does NOT cover group disability
51
Partial Disability Rider
1. Usually 50% total disability benefit
2. Max payment period is 3-6 months
52
Once Enrolled In Part A and Part B:
CANNOT contribute to HSA
53
Residual Benefit Rider
1. Benefits proportional to amount of income lost & payable for same duration as policy's max benefit period
54
Disability Waiver Premium Provision
May waive premiums if insured becomes totally disabled
Disability lasts for 90 days or longer
55
Defenses
Eagles defense is ASS
Nobody CONTRIBUTED
Everyone COMPARED
They're in LAST
56
Auto Insurance Policy Most Important For Wealthy?
Liability Sections ---- A & C
1. Liability
2. Uninsured motorist
The rich party in AC
57
Auto policy coverage most important for unemployed?
Part B - Medical
Part D - Damaged Auto
58
FSA
NO FICA
Contributions not included in income
59
Life Settlements
Subject to Capital Gains
60
Taxation of premiums
162 Bonus
ER deducts premium
ER pays bonus
EE taxed on bonus
EE - benefits taxed fee
Salary Continuation
ER deducts premium
Pretax salary
Benefits TAXABLE To EE
61
National Association of Insurance Commissioner's (NAIC)
1. Indirectly regulates insurance companies
2. No legal powers
3. Makes recommendations for legislation and policy
4. State commissioners may accept or reject recommendations
62
LTC Insurance Keys
NAIC model legislation states that long-term care contracts must be guaranteed renewable or noncancellable. They must have a 30-day free look period and an expected loss ratio of 60%. If the policy is a replacement policy, the insurer must waive the time period regarding pre-existing conditions.
63
Kevin owns a mid-sized printing business with approximately 200 employees. Rather than pay high premium costs for commercial insurance, he decides to provide insurance benefits directly to his employees. You advise him that a major disadvantage to this type of plan is exposure to catastrophic loss and recommend that he acquires insurance to pay claims in excess of $5 million. What is this method of protection called?
Basic example of a self-funded plan
64
Julia travels extensively for her job and lives in an apartment. She has a collection of fur clothing that she keeps at a special temperature and humidity in a refrigerator in her apartment. How should she insure the fur clothing?
On A Valued Basis
65
Which of the following are life insurance riders?
Guaranteed Insurability – Insured may purchase additional amounts of insurance at stated intervals without providing evidence of insurability
Accidental Death Benefit – If the death of the insured is caused by an accident, an additional sum equal to the face value of the policy will be paid.
Disability Waiver Provision – Company agrees to waive all premiums due after the insured has become totally and permanently disabled.
66
An older man owns a life policy with a $50,000 death benefit. He took a $30,000 loan against the policy. Over 10 years, $10,000 in dividends was used to reduce premiums (billed at $4,000 per year). The cash value of the policy is $15,000 (net of loan). If he surrenders the policy, which of the following is true?
Net Cash Value
$15,000
(net of loan)
Loan
+ 30,000
(add loan back)
Total cash value
$45,000
Less premiums
- $30,000
Ordinary income
$15,000
* $40,000 billed less $10,000 dividends used to pay premium. The surrender will create ordinary income, not ordinary gain.
67
Which one of the following describes the conversion provision in a life insurance policy?
The insured may exchange term insurance for permanent insurance without having to show evidence of insurability.
It is important to remember you can only exchange term for permanent.
68
Jay, a 57-year-old employee, is provided with a $250,000 group term life insurance policy. For this coverage, Jay contributes $0.20 per $1,000 of coverage per month. What amount is included in Jay's income if the Table 1 rate is $0.43 per $1,000 of coverage per month?
Monthly cost $0.43 x 200 = $86
Contribution $0.20 x 250 = - 50
$36 x 12 = $432
69
Probation period in a disability policy?
Time the insured must wait after the issue of the policy before specified conditions will be covered
70
Bill has a disability policy and switches jobs to a more hazardous job and receives and increase in pay. What will the insurance company do?
In the case of increased risk on a disability policy the insurer will generally reduce coverage to match what the premium will purchase at the new, riskier position.
71
What branch of government is in charge of enforcing state insurance code?
Executive Branch
Enforcing = Executive branch
72
Branch of government responsible for proposal of bills and passage of legislation that governs the conduct of insurance organizations and their business?
State Legislature
73
Moral Hazard vs. Morale Hazard
MorAL - Intentionally seeking risk for personal gain.
AL intentionally drove his car into the tree for personal gain.
Morale Hazard - Indifferent to risk.
iPhone becomes outdated but you have insurance on it. You are indifferent if something were to happen to it.
