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CFP > Insurance > Flashcards

Insurance Flashcards

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1
Q

FSA Salary Reductions

A
  1. No FICA / FUTA
  2. Must spend by March 15th
  3. $5,000 max
  4. No max for amount of kids
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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

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3
Q

Declarations Page

A
  1. Person
  2. Property
  3. Activity
  4. Insurance provided

PP + AI = Declarations Page

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4
Q

Insuring Agreement

A
  1. Section that promises to pay for loss
  2. Legally binding arrangement
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5
Q

Insurance Contract Basis Formula

A

Basis = premiums paid - dividends received - outstanding loans or withdraws

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6
Q

Gain at surrender

A

Cash surrender = investment in the contract (basis)

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7
Q

FSA

A
  1. Max salary reduction dependent care = $5,000
  2. Reimbursement = $2,750
  3. NO SELF EMPLOYED
  4. NOT subject to payroll taxes
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8
Q

Non Forfeiture Option that could cause delay?

A
  1. Cash at surrender value
  2. 6 Month delay
  3. PREVENT RUN ON BANKS
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9
Q

Residual Disability

A
  1. Inability to perform one or more duties of your occupation
  2. Inability to perform these duties as often as before
  3. Loss of significant percentage of your pre-disability income
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10
Q

$75,000 CV
1. What amount do you receive at surrender?

  1. What amount of distribution is taxable?
A
  1. Cash value - loan
    75,000 - 30,000 = 45,000
  2. Premiums paid - dividends
    60,000 - 10,000 = 50,000 basis

75,000 - 50,000 = $25,000

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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

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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

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13
Q

LTC Deduction Dollar Amount Limits:

A

Ages 51-60 = $1,630

Ages 61-70 = $4,350

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14
Q

Medicare

A
  1. Basic hospital insurance
  2. Supplementary medical insurance
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15
Q

Disability Income Insurance Terminates For:

A
  1. Insured returned to work
  2. Maximum benefit period has been reduced
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16
Q

Fully Insured Group Health Plan

A

Benefits from comprehensive medical expense plan are ALWAYS tax FREE to the EmployEE

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17
Q

Declarations Page

A

Names
Property
Amount of coverage

DEC = NPA

NAMES
PROPERTY
AMOUNT of COVERAGE

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18
Q

Reformation

A

Change contract after the fact
Fails to meet the intention of the two parties - can be amended

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19
Q

Adhesion

A

You take the contract as is or not at all

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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

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21
Q

Vicarious Liability

A

Right to collect from third parties who are responsible for causing the loss

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22
Q

Defenses

A
  1. Assumption - skiing
  2. Contribute - jay walking
  3. Comparative - A. 20% B. 80%
  4. Last Clear Chance - road rage
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23
Q

Cafeteria Plan Benefits

A
  1. Cash benefit
  2. Group life term insurance
  3. Accident & health benefits
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24
Q

Guaranteed Renewable

A
  1. Can keep policy
  2. Premium MAY go UP

I guarantee you the premium MAY go up

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25
Q

“Donut Hole”

A
  1. Medicare prescription drugs - PART D
  2. Donut hole limits what the drug plan covers for prescriptions up to specific $ amount
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26
Q

Skilled Nursing Care Involves:

A
  1. Medically required care
  2. 24 hour oversight
  3. Provided by licensed medical practitioner
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27
Q

Provisions to allow life insurance company to refuse to make payment on a policy?

A
  1. Incontestable clause
  2. Suicide clause
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28
Q

Tax Benefits of Premiums Paid on a LTC Policy ?

A
  1. Must be noncan or guaranteed renewable to be deductible
  2. Premiums paid are deductible but limited based on age
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29
Q

Reasons to fund a business with life insurance?

A
  1. Provides sufficient assets for the buyer to perform contract
  2. Gives agreement efficiency “no money no deal”
  3. Strengthens commitment of buyer
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30
Q

Casualty Losses

A
  1. Generally not deductible if personal
  2. Reimbursements reduce loss amount
31
Q

HSA Triple Tax Advantage

A
  1. Above line deduction
  2. Tax deferred growth
  3. Tax free distributions
32
Q

HSA Rollover Options

A

Indirect rollover from MSA to HSA - one per year

Direct HSA to HSA - unlimited

Direct IRA to HSA rollover - one time only

33
Q

Dynamic Risk

A

Core risk resides in the change in environment causes by the changing human condition

34
Q

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?

A

31 DAYS

35
Q

What business insurance policies are tax deductible by the business?

A
  1. Workers comp
  2. Unemployment
  3. Commercial umbrella insurance
  4. A BOP policy
36
Q

Aleatory

A

Unequal out come is uncertain

37
Q

Waiver Provisions

A

Prez, VP, Secretary may alter contract. Must be accepted as is.

“Waiving president, VP, Secretary Alter contract. Accept as is”

38
Q

Unilateral

A

Only 1 party is bound. The insured makes no promise

“Unicycle”

39
Q

Adhesion

A

Contract is accepted as is. Not negotiated

40
Q

Length of time to be considered fully insured to qualify for disability?

A

40 Quarters

41
Q

Conditional Receipt

A
  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
Q

Workers Comp Example:

A

Employer is protected only from employee from filing suit if they accepted workers comp. Family members can still sue

43
Q

Max deductible contribution in a target benefit plan?

A
  1. Max 25%
  2. Aggregate eligible compensation of all covered employees
44
Q

Endorsement Method

A

Pay HIGHER of cash value or premiums paid

45
Q

Self Insurance

A

Risk retention

46
Q

FSA

A
  1. Limited to $2,750
  2. No FICA & FUTA
  3. Extra 2.5 months to spend after year end
47
Q

Code Section 125

A
  1. Not a group plan
  2. Not deductible by employer
  3. Flexible spending account funded by employee
  4. Part of cafeteria plan
48
Q

HRA

A
  1. Only C corp can use it
  2. Soley employer funded
  3. Reimburses employee for substantial medical expenses
49
Q

Medical Supplement / Medigap Policies

A
  1. Reimbursement for insures hospital expenses
  2. Reimbursement for 20% share of (Medicare part B)
50
Q

COBRA Coverage

A
  1. Covers group dental & vision
  2. Does NOT cover group disability
51
Q

Partial Disability Rider

A
  1. Usually 50% total disability benefit
  2. Max payment period is 3-6 months
52
Q

Once Enrolled In Part A and Part B:

A

CANNOT contribute to HSA

53
Q

Residual Benefit Rider

A
  1. Benefits proportional to amount of income lost & payable for same duration as policy’s max benefit period
54
Q

Disability Waiver Premium Provision

A

May waive premiums if insured becomes totally disabled

Disability lasts for 90 days or longer

55
Q

Defenses

A

Eagles defense is ASS

Nobody CONTRIBUTED

Everyone COMPARED

They’re in LAST

56
Q

Auto Insurance Policy Most Important For Wealthy?

A

Liability Sections —- A & C

  1. Liability
  2. Uninsured motorist

The rich party in AC

57
Q

Auto policy coverage most important for unemployed?

A

Part B - Medical

Part D - Damaged Auto

58
Q

FSA

A

NO FICA

Contributions not included in income

59
Q

Life Settlements

A

Subject to Capital Gains

60
Q

Taxation of premiums

A

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
Q

National Association of Insurance Commissioner’s (NAIC)

A
  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
Q

LTC Insurance Keys

A

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
Q

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?

A

Basic example of a self-funded plan

64
Q

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?

A

On A Valued Basis

65
Q

Which of the following are life insurance riders?

A

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
Q

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?

A

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
Q

Which one of the following describes the conversion provision in a life insurance policy?

A

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
Q

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?

A

Monthly cost $0.43 x 200 = $86
Contribution $0.20 x 250 = - 50
$36 x 12 = $432

69
Q

Probation period in a disability policy?

A

Time the insured must wait after the issue of the policy before specified conditions will be covered

70
Q

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?

A

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
Q

What branch of government is in charge of enforcing state insurance code?

A

Executive Branch

Enforcing = Executive branch

72
Q

Branch of government responsible for proposal of bills and passage of legislation that governs the conduct of insurance organizations and their business?

A

State Legislature

73
Q

Moral Hazard vs. Morale Hazard

A

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.

CFP (16 decks)

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