Insurance Flashcards
What risk management techniques do HSAs entail?
High deductible is risk retention; insurance is the risk transfer
Risk transfer
Insurance in other words. For high loss severity and low loss frequency.
Risk avoidance
High loss severity and high loss frequency. Insurance premiums would be prohibitive.
Risk retention and Risk reduction
Low loss severity and high loss frequency. High frequency implies transfer will be costly
Risk retention
Low loss severity and low loss frequency. Minimal financial impact
Good rule of risk management
Consider the potential amount of the possible loss first
Four principles supporting indemnity
- Insurable interest 2. Concept of actual cash value 3. Other insurance (limit the ability to profit from a loss) 4. Subrogation
Cross-purchase agreement
No insurable interest exists for the company
Adhesion
Contracted is accepted “as is” or not at all. Because insurance policies are contracts of adhesion, courts are likely to rule in favor of the insured and against insurer.
Aleatory contract
Insured may pay large premiums and receive no proceeds from the policy.
Subrogation
When insurer pays a claim, it takes over the legal rights its insured had against a negligent third party
Why would a small company use stop-loss coverage to partially self-insure?
Claims over $250k would be paid by insurance company. Under would be paid by employee, employer contributions, and reduced health insurance premium costs.
Elements of insurable risk
Fortuitous and accidental. Not inevitable as element of risk would not be present.
Insuring agreement
Insurance company promises to pay for the loss if the loss should result from the covered perils.
Declarations in insurance contract
Factual statements indemnifying the specific person, property, or activity being insured.
Capital utilization
Factors annuitization to fund future income but leaves no money at the end.
Formula is yearly income ÷ (return - inflation) + money for year 1
Difference between A.M. Best and S&P, Moody’s, and Weiss
A.M. Best provides detailed, historical data on insurance carriers. The others provides ratings
Participating policy
Life insurance policy that pays dividends
Example of absolute liability
Keeping wild animals
Participating policies written by a participating insurance company
They overcharge premiums, and don’t pay dividends if the company loses money
Cost-benefit analysis
Performed by the applicant, not the underwriter
Open perils
The insurer agrees to pay for damage by any peril except those excluded.
Amount paid by insurance formula
Replacement cost x Coinsurance % = Insurance required
(Insurance carried÷Insurance required x loss) - Deductible = Amount paid by insurance
What happens when the amount of the required insurance on dwelling is less than 80%?
Insurance company pays the greater of the ACV or replacement cost (less the deductible)
Describe split limits
First limit is the maximum payable to any one person for bodily injury. Second limit is the aggregate that will be paid for all bodily injury claims. Third limit refers to the aggregate property damage claims.
What policy is vandalism under?
A covered peril under the HO-2 Broad Form Policy
HO-4
A renters policy where you don’t need coverage on the structure. Broad Form coverage on personal property and includes rental payments
Homeowners section II coverage
Addresses personal liability and medical payments to others
Carelessness in a homeowners policy
It is not an exclusion because it is not an intentional loss
Perils included in a personal auto policy
Earthquake, flood, and falling objects. Normal wear and tear are not covered
HO-2 policies vs. HO-3 policies
Damage to an attached garage is covered under Coverage in an HO-2 policy, but damage to a detached garage is protected under Coverage B in an HO-3 policy
Umbrella policy formula
Amount of legal judgement - liability limit
Umbrella liability insurance policy coverage
Provides excess coverage when the limits of the insured’s basic liability coverage are adequate and inadequate
Which employer paid insurance premium is not tax-deductible?
Key employee life insurance
Coinsurance in a family
You have to calculate each person’s coinsurance separately, not all together.
Medigap policy
Available only to individuals enrolled in both Medicare Part A and Part B
Break point
The insurer begins to pay 100% of all medical expenses.
Medicare Part B
Self-administered drugs are not covered. Medicare B benefits have a deductible. Part B is voluntary. Physician charges are covered anywhere in the U.S.
Eligibility for Medicare for family after dropping coverage at 65
The family can elect COBRA coverage for 36 months
Medigap policies
Cover approved expenses not paid by Medicare
Distributions from an HSA
They have to be qualified to be tax-free
COBRA election period
Lasts 60 days after the actual notice of the event to the qualified beneficiary by the plan administrator
