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CFP Self-Study > Insurance > Flashcards

Insurance Flashcards

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1
Q

Risk

A

Condition with a possibility of loss or a situation with exposure to loss

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2
Q

Peril

A

The cause of a loss

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3
Q

Hazard

A

Condition that increases the chance and severity of loss

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4
Q

Insurable Risks

A
  1. Predictable
  2. Definite and Measurable
  3. Fortuitous or Accidental
  4. Not catastrophic to the insurance company
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5
Q

Basic Planning rules for Risk Management

A
  1. Coverage for potential catastrophes should be purchased first (life, DI, health, HO and car insurance)
  2. Severity is more important than probability
  3. High probability means high premiums or declination of coverage by the insurance company
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6
Q

Guidelines for Risk Management

A

High Severity/Low Frequency - Transfer
High Severity/High Frequency - Avoidance
Low Severity/High Frequency - Retention and/or Reduction
Low Severity/Low Frequency - Retention

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7
Q

Indemnity

A

Principle under which the insurance company seeks to reimburse the insured for actual loss or costs incurred. No more, no less
1. Insurable Interest
2. Actual Cash Value
3. Other Insurance
4. Subrogation

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8
Q

Aleatory Contract

A

Unequal consideration between members of the contract. In life insurance, the premium paid is much smaller than the potential death benefit. It’s for this reason life insurance paying out upon death is considered a “step up” in basis.

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9
Q

Subrogation

A

The insurance company pays the claim and then takes over the legal rights from that point. The insured is out of the picture.

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10
Q

Collateral Source Rule

A

In tort liability, the negligent party is still held responsible and damages are not mitigated by payments received from other 3rd parties.

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11
Q

Parts of the Insurance Contract (DICE)

A

Declarations - Identify specific parties to the contract and what is covered
Definitions - Key policy terms
Insuring Agreements - Basic promises of the insurance company
Conditions - Detailed duties and rights of both parties
Exclusions - Circumstances under which the insurance company will not pay

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12
Q

Capital utilization method of insurance needs analysis

A

Method by which annuitization is factored in to account for future needs, but leaves no money left over

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13
Q

Capital retention or preservation method of insurance needs analysis

A

Only interest is utilized for future needs. Capital remains at the end of the income period

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14
Q

Participating Policies

A

Policies offered by mutual (owned by policy holders) or stock (owned by stockholders) insurance companies. Overcharge premiums, rebate unused premiums to policyholders via tax-free (usually) dividend. Dividends are based on higher than expected returns or lower than expected mortality costs.

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15
Q

Non-participating Policy

A

Company retains profits for shareholders

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16
Q

Insurance Rating Agencies

A

A.M. Best - A++ to F
Standard and Poor’s - AAA to CCC
Moody’s - Aaa to C
Weiss - A+ to F
Note: only A.M. Best provides detailed historical information on carriers

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17
Q

Loss Adjustment Process

A
  1. Notice of loss
  2. Investigation
  3. Proof of loss (signed document)
  4. Payment or Denial
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18
Q

Homeowners’ Insurance Coverages

A

Section I Coverages
A. Dwelling
B. Other Structures
C. Personal Property
D. Loss of Use
Section II Coverages
E. Personal Liability
F. Medical Payments
Deductible Section I
Mortgagee:
Premium:

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19
Q

Coverage A: Dwelling Coverage

A

Covers the dwelling as well as all structures attached to the dwelling (such as garage, deck, or fence). It also covers supplies located on or next to the premises for construction, repair or alteration of the dwelling or other structures. Land is specifically excluded.

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20
Q

Coverage B: Other Structures Coverage

A

Covers structures on the premises adjacent to the dwelling in a clear space. Swimming pool, detached garage, fences, patio, or detached living space.

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21
Q

Coverage C: Personal Property Coverage

A

Personal property coverage operates anywhere in the world. There are usually sub-limits for things like watercraft, jewelry, silverware or money.
Specific exclusions from Coverage C:
1. Animals, birds, and fish
2. Motor vehicles/aircraft (separate policy)
3. Property of roomers or boarders
4. Property in an apartment rented by others
Homeowners policies generally require an endorsement for exposures related to being a landlord.

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22
Q

Coverage D: Loss of Use

A

Loss of use covers additional living expenses arising from damage to the insured property. Only pays necessary increase in living expense incurred to continue as nearly as possible to the normal standard of living.

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23
Q

Coverage E: Personal Liability

A

Provides protection for damages that the insured is legally liable for and arise out of bodily injury or property damage. Insurance company also agrees to defend the insured and settle any suit. Exclusions:
1. Liability from business activities or professional services
2. Liability from usage of motorized land vehicles (except RV or golf cars on premises)
3. Liability from usage of watercraft 26’ or longer or 50HP or more
4. Liability from usage of aircraft
5. Liability for bodily injury that results in worker’s compensation

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24
Q

Coverage F: Medical Payments

A

Provides very limited amounts of coverage for necessary medical treatment of persons other than the insured who are injured while on the covered premises. Does not provide and liability coverage.

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25
Q

Basic Form Perils (covered)

A

WHARVES/FLT or HARVEST/WFL
Windstorm, Hail, Aircraft, Riot, Vandalism, Vehicles, Explosion, Smoke, Fire, Lightning and Theft
There are 10 basic form covered perils in total

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26
Q

Broad Form Perils (covered)

A

Royal Air Force
Includes all basic form perils, as well as RAF
Rupture of a system, Artificially generated electricity, Falling objects, Freezing of plumbing

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27
Q

Open Perils

A

Most comprehensive coverage. Insurer pays for damage by ANY peril except those specifically excluded. (generally a correct answer on the exam)

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28
Q

HO-1 Policy (Dwelling)

A

HO-1 provides Basic Peril coverage for A, B, C and D

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29
Q

HO-2 Policy (Home)

A

HO-2 provides Broad Peril coverage for A, B, C and D

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30
Q

HO-3 Policy (Home)

A

HO-3 provides Open and Broad Peril coverage as follows:
A: Open Perils
B: Open Perils 10% of Coverage A
C: Broad Perils 50% of Coverage A
D: Open Perils 30% of Coverage A

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31
Q

HO-5 (home) (HO-3-15)

A

HO-5/HO-3-15 provides fully Open Peril coverage and is the most comprehensive HO policy.
A: Open Perils
B: Open Perils 10% of Coverage A
C: Open Perils 50% of Coverage A
D: Open Perils 30% of Coverage A
HO 3-15 has an an endorsement that changes C coverage on an HO-3 policy from Broad Perils to Open Perils (essentially making it an HO-5)

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32
Q

HO-8

A

HO-8 provides Basic Perils coverage for older homes.

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33
Q

HO-4

A

HO-4 is also known as renter’s insurance. Provides Broad Perils coverage for C and D only:
A and B: No coverage
C: Broad
D: Broad 50% of C

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34
Q

HO-6

A

HO-6 covers Condominiums. Provides Open and Broad Perils coverage for C and D only:
A and B: Named Perils Only for installed items
C: Open
D: Broad 50% of C
Can also provide loss assessment coverage which protects against assessments made by condo association due to community losses

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35
Q

Exclusions

A

There are 8 general exclusions that apply to ALL forms of homeowners insurance:
OPEN WIF
Ordinance of law
Power failure
Earth movement (earthquake)
Neglect
Nuclear Hazard
War
Intentional Loss
Flood
*Sinkhole is covered if it affects the stability of the house

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36
Q

Replacement Cost vs. Actual Cash Value (ACV)

A

Replacement cost does not factor in depreciation. Typically used for dwelling coverage on the exam.
ACV is replacement cost less depreciation. Typically used for personal property.
Neither Replacement Cost nor ACV use original purchase price in the calculation.

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37
Q

Property Loss Calculation

A

Greater of:
Actual Cash Value or
Replacement Cost X the Coinsurance Percentage = insurance required
Insurance Carried / Insurance Required minus the deductible
Note, if insurance carried is greater than 80% of the replacement cost, ACV is not used

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38
Q

Personal Auto Policy Coverages

A

A. Liability
B. Medical Payments
C. Uninsured Motorist Liability
D. Damage to your Auto
1. Collision
2. Other than Collision

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39
Q

Other Than Collision

A

Open Perils type property coverage that designates several exclusions:
1. Breakage of glass
2. Loss caused by missiles
3. Falling objects
4. Fire, theft, larceny
5. Flood
6. Earthquake
7. Windstorm, hail
8. Vandalism, riot
9. Contact with bird or animal
10. Explosion

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40
Q

Umbrella Liability Insurance

A

Provides coverage for catastrophic liability claims. Must have certain underlying liability coverage in place for homeowners and auto insurance.

If it is an answer on the exam, it is correct.

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41
Q

Umbrella Exclusions

A
  1. Intentional acts to harm (bodily injury or property damage)
  2. Damage to owned property
  3. Business pursuits
  4. Malpractice
  5. Directors and Officers activities
  6. Worker’s compensations obligations
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42
Q

Business Owner’s policy

A

Coverage for small to medium sized business. Covers real property, contents and liability. Professional liability is excluded. Premium is deductible to the business.

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43
Q

Commercial Umbrella policy

A

Excludes error, omission, malpractice or mistake of a professional. Premium is deductible to the business.

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44
Q

Professional liability

A

E&O - covers substandard conduct that results in property damage or loss.
Malpractice - covers substandard conduct that results in bodily injury.

45
Q

Worker’s Compensation

A

Absolute liability. Full cost must be borne by the employer. Premium cost is deductible.
Coverage:
1. Medical expenses without limit on time or money (includes
occupational disease). No deductible or coinsurance.
2. Disability Income with very short waiting periods. Both partial and
full disability. Usually 66 2/3% avg weekly pay (min/max)
3. Death benefits payable to family members
4. Medical and vocational rehabilitation
Completely tax free to receiver

46
Q

Unemployment Insurance

A

Benefits are determined by previous earnings and are payable for 26 weeks. Extension (13 weeks) may be granted. Generally taxable to the receiver.

47
Q

How Medical Insurance works

A

See page 4-1 of Insurance:
Example - $500 deductible with 80% coinsurance and $5,000 stop-loss
Insurance pays $0 up the deductible, 80% of the stop-loss, then 100%
Insured pays $500 deductible, 20% of the stop-loss, then $0

48
Q

Parts of Medicare

A

Part A - Hospital Insurance
Part B - Medical Insurance
Part C - Medicare Advantage
Part D - Prescription Drugs

49
Q

Medicare Part A Benefits

A

Part A is Automatic
1 - Hospital stays - subject to a deductible for the first 60 days, then a second deductible for the next 30 days, then a third deductible for the next 60 days. Inpatient hospital care is limited to 150 days for one stay.
2 - Post hospital extended care in a skilled nursing home. Up to 100 days.
3. Unlimited number of post-hospital home health services.
4. Hospice care for terminally ill.
5. Patient pays for first 3 pints of blood or donates them. Medicare A covers additional blood.
Services outside the US are generally not covered. Some exceptions for Canada, Mexico, the Caribbean and aboard ships in US Territorial waters. Medicare is a secondary payor to private health insurance or worker’s compensation.

50
Q

Medicare Part B

A

Part B is optional. Patient pays a deductible first, and then 20% (unlimited) copay. Medicare pays 80% of approved charges only. No stop loss.
Covers Doctor’s services (house calls, office visits, nursing home visits)
Diagnostic tests
Radiology/Pathology
Mental Illness
Transfusions
Physical/Occupational Therapy
Drugs and biologicals that cannot be self administered
Outpatient Services
Unlimited home health services
Free preventative services (physical, colorectal exam, mammogram)
One Free Flu shot
Does not cover routine foot care, dentures or dental care, exams for eyeglasses or hearing aids, most immunizations or prescriptions.

51
Q

Medicare Part D

A

Insurance companies approved by Medicare offer prescription drug coverage. Drug makers must generally provide a 50% discount. To get part D, you must have parts A and B. Medicaid patients qualify for part D coverage.

52
Q

Medicare Supplement (Medigap)

A

Most states offer plans A through J to cover the co-pays and deductibles from Part B. You must be enrolled in Medicare A and B to gain access to a medigap policy.

53
Q

Capitation

A

Monthly fee paid to HMO provider. In return, individual receives virtually all the medical care required during the year.

54
Q

Income Tax Implications of Group Health Insurance

A

Premiums are tax-deductible to the employer
Premium payments by the employer are not taxable to the employee
Benefits in excess of medical expense ARE taxable to the employee
Self-employed persons, partners, 2% shareholder-employees of an S corp may be able to deduct self employed health insurance premiums above the line.
Note: Some large corporations must report heath care premiums on the W-2, but it is not taxable income.

55
Q

COBRA/HIPAA Provisions for Self-Funded health coverage (20 or more full and part-time employees)

A

Voluntary/Involuntary Term or change from FT to PT - 18 Months for terminated employees and other dependents
Death, Divorce, Legal Separation, Eligibility for Medicare - 36 Months for spouses (death, divorce, legal separation) and other dependents (death, emancipation)
Loss of dependent status - 36 Months for dependents whose status changed
SSDI Disability - 29 months if within 60 days of triggering event (extension of 11 months)
Continuation is not automatic and must be elected

56
Q

Medicare Part B election for those covered by workplace plans

A

Elect COBRA for 18 months
Sign up for Part B within 8 months (past 8 months will require a higher premium)
Upon enrolling in Part B, medigap enrollment period begins

57
Q

Dependents under Age 19 (health Insurance)

A

No child under 19 can be denied coverage because of a pre-existing condition

58
Q

HSAs

A

Contributions can come from individual or employer
Limits and HDHP deductibles are on the tax table
$1,000 catch up for 55 and older
Combo HDHP and Savings account
Tax-free distributions for medical costs not covered by HDHP
Nonmedical deductions - 20% penalty under 65
Can be used to pay for retiree health insurance, prescriptions, COBRA and qualified LTC
Contributions can be carried forward and passed to spouse tax free
Once in a lifetime rollover from IRA to HSA Election is irrevocable

59
Q

HSA Qualified Expenses

A
  • Doctor visits and tests not covered by the insurance policy
  • Surgical procedures and hospitalization related charges not covered by the insurance
  • Prescription drugs including OTC drugs
  • Acupuncture and chiropractic care
  • Eye exams, glasses and laser surgery
  • Hearing test and hearing aids
  • Dental exams, dental work and dentures
  • Alcohol and drug abuse treatment
  • Insulin and diabetic testing supplies
  • Long term care related expenses
  • New for 2022:
  • Most over the counter (OTC) drugs (vitamins and supplements do not qualify)
  • Feminine hygiene products
  • Insect repellant and anti-itch creams
  • Skin creams and ointments, including cleansers, toners, and moisturizers
  • Sunscreen and OTC remedies (like aloe gel)
  • Acne treatment
  • Eye drops
60
Q

Archer Medical Savings Accounts

A

Stopped on 12/31/2005
Tax free distributions for eligible medical expenses not covered by HDHP

61
Q

Health Reimbursement Arrangements

A

Employer Funded, reimburses substantiated medical expenses up to a maximum dollar amount per coverage period.
Cannot be part of a cafeteria plan
Reimbursed amounts are excluded from gross income
No cash out option, even at termination
Can reimburse expenses after employment
Employer retains excess unused money in an HRA

62
Q

Group Health Conversion

A

Depending on state rules, conversion of a group health policy may be possible. Election should be made immediately after termination or if COBRA is elected, before the Continuation Period ends. Conversion availability is also subject to plan rules.

63
Q

Noncancelable (noncan)

A

Guarantee that a contract will be kept in force as long as premium is paid and the premium will not increase (normally renewable at age 65)

64
Q

Guaranteed Renewable

A

Guarantee that a contract will be kept in force as long as premium is paid, but premium can be increased on a class basis (normally renewable to age 65). Lower premiums up front, will likely increase.

65
Q

Conditionally Renewable

A

Allows a noncan or guaranteed renewable contract to remain in force beyond age 65. Usually only a 2-year benefit and premium is adjusted for benefits and age. Only extended if insured is still an active employee.

66
Q

Presumptive Disability

A

Loss of sight, hearing, speech, both hands, both feet, one hand and one foot.

67
Q

SSDI Waiting Period

A

5 months, but usually a 12 month waiting period to establish total disability, and then 7 months is reimbursed in a lump sum.

68
Q

DI Premiums Taxation

A

If employee owns and pays the premium, the premiums are not deductible, but the benefits are tax free.
If the employers pays the premium under a 162 bonus plan, the benefits are tax free to the employee and the premium is deductible for the employer.
If the employee owns, but the employer pays, the benefits are taxable to the employee, but the employer gets to deduct the premium.
Partnership and S-Corp - Can deduct premiums paid for greater-than 2% shareholder of an S corp. The premium cost is paid to (taxable) the partner or shareholder. Benefits are then tax-free to the partner/shareholder because they paid the tax on the premium.

69
Q

Taxation of LTC

A

Premiums paid and and qualified LTC services are deductible as itemized medical expenses. Limitations based on age:
51-60 - $1,690
61-70 - $4,510
Subject to 7.5% AGI floor
Benefits not taxable (subject to dollar caps)
Qualified LTC policies do not have cash value
FSAs cannot be used to pay premiums or LTC services
HSAs can be used to pay premiums of Qualified LTC policy and LTC services

70
Q

Medicaid

A

Less than $2,000 countable assets
5 year gift lookback
Can’t have more than $636,000 in home equity
Annuities must name state as remainder beneficiaries
Partnership LTC policies protect assets from Medicaid up to the amount of the LTC policy (ie, if the client exhausts their LTC policy and then needs care under Medicaid, their personal assets up to the amount of the LTC policy are protected).

71
Q

ART and YRT

A

Annually Renewable Term
Yearly Renewable Term

72
Q

Whole Life Advantages/Disadvantages

A

Advantages:
Permanent protection
Level premium
Combines savings with protection
Disadvantages:
Life premiums (or limited pay)
Higher premiums than term at the beginning
Not flexible

73
Q

General Account vs. Separate Account (WL/UL vs VUL)

A

WL/UL have a general account which can be frozen if a carrier gets into financial trouble.
VUL have separate accounts which are not controlled by the carrier
Separate accounts are an advantage if a client is concerned about an insurance company’s solvency.

74
Q

Second to die policies

A

Provide liquidity at death of second person for estate taxes. The cost is lower than two policies on two separate lives.

75
Q

Waiver of premium options

A

Insurer just waives the mortality and expense charges
Insurer waives the entire premium the insured would have paid

76
Q

Dividend Options for Participating Policies

A

CRAPO
Cash
Reduction of Premiums
Accumulated with interest (dividends tax-free, but interest is taxable)
Purchase paid-up additions
One-year term insurance (also known as the fifth dividend option)
Note - dividends for participating policies are tax-free because they represent a return of premium (exception is a MEC where dividends are received in cash, used to reduce premiums, or retained by the insurer to pay back a policy loan)

77
Q

Non-forfeiture Options

A

CRP
Cash (surrender) - 6 month delay clause causes life insurance cash value to not be considered liquid. Prevents insurer bankruptcy due to run on the insurer.
Reduced paid-up insurance
Paid up term insurance (or extended term)

78
Q

Settlement Options

A

Cash (lump sum)
Interest (insurer retains proceeds and pays interest)
Installments for a fixed period
Installments of a fixed amount
Life Income

79
Q

Definition of terminally ill for purposes of accelerated death benefit or viatication of life insurance policy

A

Less than 24 months (2 years to live)

80
Q

Grandfathered Life Insurance Rules (Material Change)

A

Death benefit increase more than $150,000
Increase or additional benefit that required proof of insurance but none was given

81
Q

Transfer for value

A

Life insurance proceeds taxation changes when there is a transfer for value. In most cases, death benefits from life insurance are tax free. However, when substantial consideration is received for the right to those death benefits, the benefits become taxable. Exceptions:
Transfer to the insured
Transfer to a business partner
Transfer to a corporation in which the insured is a shareholder or officer
Transfer pursuant to a divorce agreement

82
Q

Gift of a policy

A

Gift of a policy to family creates a taxable gift. Death benefit proceeds are treated like a gift.

83
Q

Stock Redemption (Entity Purchase) Buy-Sell

A

Corporation agrees to buy the deceased owner’s interest using life insurance
Practical with multiple owners
Corporation is owner and beneficiary of policies on each shareholder
Premiums are non-deductible
Business receives proceeds tax-free
No step-up in basis and old basis does not carry over
Estate of deceased owner gets full step up
Life insurance can be attached by creditors
Gain on sale is gross proceeds less original stock basis

84
Q

Cross-Purchase (Stockholder Purchase) Buy-Sell

A

One stockholder agrees to buy the deceased owner’s interest using life insurance
Cumbersome with multiple owners
Life insurance is required by each shareholder on the lives of others
Premiums are non-deductible
Stockholder receives proceeds tax-free
New owner gets a full step up in basis to current FMV of deceased owner’s interest
Estate of deceased gets a full step up
Life insurance cannot be attached by creditors
Gain on sale is less than entity-purchase

85
Q

Benefits of a Buy-Sell

A
  • Guarantees a market for the business interest
  • Provides liquidity for the payment of death taxes and other estate settlement costs of the deceased owner
  • Helps establish the estate tax value of the decedent’s business interest
  • Enables the business to continue in the hands of the remaining owners
  • Makes a business a better credit risk
86
Q

Disability Buy-Sell Agreement

A

Premiums are not deductible
Benefits to the company are tax-free
Remaining owner has more equity in the business (no step up in basis)
Disabled owner is bought out and realizes cap gains above basis
No benefits to disabled owners family
Benefits paid in lump sum or installment

87
Q

Split-Dollar Life Insurance

A

Endorsement method (Corporation owns)
Employee is not a shareholder
Employer retains cash value (or premiums paid, if greater) at death or surrender
Employee’s beneficiary gets the balance of the death benefit
Employer pays that premium

Collateral Assignment method (Employee owns)
Employee IS a shareholder
Employee assigns the policy
Employer receives premiums paid at death or surrender
Employee gets balance of cash value or beneficiary gets the balance of death benefits
Employee is charged table 2001 insurance cost

88
Q

BOE

A

Form of disability coverage that provides for ongoing operating costs of a business while an owner is totally disabled. Does not cover salary. Usually 1-2 years
Sole props can deduct premiums, benefits are taxable
Corporations cannot deduct premiums. Benefits are not taxable

89
Q

Suitability of Variable Annuities

A

Variable annuities are used for clients with moderate to high risk tolerance. If words like “attempt to cope with inflation” or “keep up with market conditions” - the variable product is usually the correct choice

90
Q

Types of Annuities

A

Pure Life
Period Certain
Refund
Joint and Survivor (not Joint-life)
Single Premium Deferred Annuity (SPDA)
Variable Annuity
Qualified Longevity Annuity Contract (QLAC)

91
Q

Qualified Longevity Annuity (QLAC)

A

A deferred fixed annuity funded by an IRA or qualified retirement plan, designed to keep the client/spouse from outliving their retirement savings. Provides a higher guaranteed stream of monthly income later in life.

92
Q

Loss Deduction on Annuities

A

Losses can only be claimed if the loss was incurred in connection with the taxpayers trade or business, or from a transaction entered into for profit. If loss is allowable, it goes against ordinary income.

93
Q

Taxation of Annuities

A

Annuities issued after 1982 are taxes LIFO. A withdrawal is taxable to the extent that the cash surrender value exceeds basis. Like IRAs, distributions before 59 1/2 are subject to a 10% penalty.

For corporation or non-natural person owners, the growth is taxed in the year it is received. Losses can also be claimed in the year they are received.

94
Q

Group Life Insurance Conditions

A
  • It must provide a general death benefit which is excludable from gross income
  • It must be provided to a group of employees as compensation for personal services performed as an employee
  • The insurance must be provided under a policy carried directly or indirectly by the employer
  • The amount of insurance provided to each employee must be computed under a formula that precludes individual selection of death benefits

Group Permanent insurance does not meet these requirements. Premiums paid for permanent group coverage are taxed to the employee and deductible for the employer (if non-forfeitable to the employee).

95
Q

Dependent Coverage

A

Group coverage on the lives of the employee’s spouse or dependents is income tax-free if $2,000 or less. Above $2,000, employee pays tax on the premium.

96
Q

Income Tax Implications of Group Life

A

$50,000 of life insurance is received tax free. Anything over and above that is charged at the table-1 rate. If an employee contributes to the premium for insurance over the $50,000, you apply it to all of the coverage and then subtract it from the applicable table 1 rate for the insurance amount over $50,000. This amount is reported on W-2 as income in the form of an annual number. It is subject to FICA and FUTA, but not self employment.

97
Q

Discriminatory Life Insurance Plan

A

The exclusion of the $50,000 of life insurance is only available to key employees if the plan does not discriminate (all employees have access to the same benefits). If the plan is discriminatory, the key employee must include the greater of the actual cost, or the table 1 cost of the coverage as income.

98
Q

Carve-out plan

A

Employer carves out one or more highly compensated employees from life insurance coverage provided by a group plan. These employees are covered by individual policies. Popular for lower premiums and portability.
Split Dollar
IRC Section 162 Bonus
DBO (death benefit only)

99
Q

Flexible Spending Accounts

A

Health FSA or Dependent Care FSA
Reductions are limited, but not subject to FICA or FUTA
Benefits can be used under COBRA (but not premiums)
Coverage is the duration of the plan year, or the employees tenure (ie, if they quit or are terminated mid-year, their FSA coverage ends, and expenses for reimbursement must have been incurred during that time)
Entire annual election is available on the first day of the plan year

100
Q

Health FSA

A

Contribution Limit for 2022 - $2,850
Use it or lose it, unless the employer allows for a grace period (12 months)
Can allow carry over up to the full amount of the limit
Amount carried over to the following year does not count against the limit for the subsequent year
Employers can allow FSA participants to carry a $570 balance indefinitely
Grace period or rolling balance, but not both (or neither)
Tax-Free Reimbursement for medical, dental and vision.

101
Q

Dependent Care FSA (DCFSA)

A

Contribution Limit for 2022 - $5,000
DCFSA reimbursement reduces the amount of the dependent care credit (20% of $3,000, $600 per child, 2 children max, $1,200 max per year)
If married, both spouses must earn income in order to be eligible for the DCFSA. Exception if non-earning spouse is disabled or a student. If one spouse earns less than $5,000, the max contribution is whatever that spouse earns.
Tax Free reimbursement for eligible expenses for dependent children under 13, or for a person of any age whom the participant claims as a dependent on their tax return and is mentally or physically unable to care for themself.

102
Q

DCFSA Eligible Expenses

A

Placement fees for a live-in or working family care provider
Before and after school care
Care of an incapacitated adult who lives with you more than 8 hrs per day
Childcare at day camp (not overnight), nursery school, or private sitter
Late pick-up fees
Expenses for housekeeper who also cares for an eligible dependent
Summer or holiday day camps, including registration fees (not overnight)
Swimming clubs, art clubs, craft clubs, music clubs, etc.

103
Q

Fringe Benefits (Tax-Free)

A

Premiums an employer pays to a health plan for the employee and family
Insurance premiums paid by the employer on a group life policy up to $50,000
Value of qualifying daycare provided by the employer (limited)
Company car for business purposes
Commuter highway vehicle and transit passes (up to $280/month)
Employer provided parking spots ($280/month)
Occasional overtime meal money, cab fare, theater or sporting event tickets
Value of discount on company products that does not exceed gross profit margin
Service discounts up to 20%

104
Q

Fringe Benefits (Taxable)

A

Insurance premiums for self-employed, partners and more than 2% owners of an S corporation (however, these are deductible on the 1040 as an adjustment to income). Heath only, not DI
Insurance premiums in excess of $50,000 if the plan is non-discriminatory

105
Q

Voluntary Employees Beneficiary Association (VEBA)

A

Employers establish a VEBA to fund certain benefits for its members
Death Benefits (or pre-fund retiree death benefits)
Medical Expense Benefits (or pre-fund retiree health coverage under FASB)
Disability Benefits
Legal Expense
Unemployment
Child Care
Severance
Education
Contributions are deductible to the employer

106
Q

Pre-Paid Legal Services

A

Taxable compensation to employees, deductible by the employer

107
Q

Group LTC

A

Not a qualified benefit under a section 125 cafeteria plan, but premiums may be paid through an HSA

108
Q

Employer paid LTC benefits (code section 106(c))

A

Employer provided LTC coverage is included in income for an employee to the extent that coverage is provided through an FSA or similar arrangement

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