Insurance Flashcards
A company can neither purchase nor own a life insurance policy to fund a cross-purchase buy/sell agreement because the company has ___________________ in the cross-purchase buy/sell agreement.
no insurable interest
A cross-purchase buy/sell agreement is between individual owners/partners/shareholders to buy another’s interest upon death, disability, or retirement.
LR Ins I-2
How do I find out how much life insurance someone should have using the capital retention calculation?
If he dies, John wants his wife to have a yearly income of $36,000 that will increase with the inflation rate of 4%. He realizes a net investment return of 7%. How much insurance should he purchase?
- 7%-4% = 3%
- $36,000/.03 = $1,200,000
- $1,200,000 + money for year 1 $36,000 = $1,236,000
LR I-7
What is the highest A.M. Best rating?
A++
Only A.M. Best provides detailed, historical data on insurance carriers. S&P, Moody’s, D&P provide ratings.
When is a life insurance policy in force?
When the policy is delivered, and the premium is collected.
If the premium accompanies the application, a conditional receipt makes the policy effective as of the date of application, provided the applicant is found to be insurable.
LR I-7
Name the perils covered on basic form of homeowners insurance.
- Windstorm
- Hail
- Aircraft
- Riot
- Vandalism
- Vehicles
- Explosion
- Smoke
- Fire
- Lightning
- Theft
LR I-9
Name the perils covered on the broad form of homeowners insurance.
Those on the basic form (WHARVVES FLT) plus
Rupture of a system
Artificially generated electricity
Falling objects
Freezing of plumbing
WHARVVES FLT RAFF
Name the 8 general exclusions that apply to all of the homeowners forms
- Flood
- Intentional loss
- Neglect
- Earthquake (movement
- Law
- Power failure
- Nuclear
- War
FINE. Loki pushed warring nerds.
Does HO-6 (Condos) ever provide Coverage A?
Yes, on a named-peril basis (like a hurricane).
Which sections of a personal auto policy are most important to wealthy clients?
The liability sections
A - Liability
C - Uninsured motorist
Which sections of the personal auto policy would be most important to someone who is unemployed?
B - Medical payments
D - Damage to your auto
because may not can afford healthcare or auto repair b/c unemployed
If the policy owner fails to maintain the required underlying coverage with an umbrella liability insurance policy, what amount of benefit will the umbrella liability policy pay?
The insurer will pay only the amount it wouldhave been required to pay had the underlying policies provided the appropriate limits.
e.g. Policy owner should’ve had $300k underlying coverage but only had $100k. $1MM Umbrella policy will only pay out $700,000. Policy owner will be responsible for gap of $200k between underlying coverage and umbrella coverage.
PS Ins 3-17
For COBRA, each part-time employee counts as a fraction of a full-time employee. How is the fraction determined?
The fraction of an employee is the number of hours the part-time employee works divided by the number of hours an employee must work to be considered full-time.
What determines whether or not a company is required to offer COBRA coverage?
The number of employees - not the number of employees covered under the company’s health plan.
A company is required to offer COBRA. An employee who is not participating the company’s health plan quits. Must that employee be offered COBRA?
NO. The first requirement is that the employee is participating in the health insurance plan. If he is not participating, he cannot elect COBRA.
Does COBRA cover group dental and vision?
YES
Group disability - NO
Once an individual is enrolled in Medicare Part A & B, can they contribute to an HSA?
NO
Are insurance premiums qualified medical expenses for HSAs?
Only certain ones - like COBRA and qualified LTC insurance
LR I-21
Is a guaranteed renewable disability policy generally less expensive or more expensive than a non-cancellable policy?
generally less expensive because insurer may increase premiums later.
If the employer pays disability premium under a salary continuation plan, premiums are _____________ to the employer and benefits are ____________ to the employee.
deductible / taxable
Assume S-corp owners pay tax on premium dollars. Thus, disability benefits are received ________.
tax free
Transfer for value (sale of a life insurance policy) causes benefits in excess of basis to be subject to ____________.
ordinary income tax
Partnership owns a life insurance policy and sells it to a partner (transfer for value). Are the proceeds in excess of consideration paid for the policy plus any premiums paid by the owner taxable as ordinary income?
No. A transfer to a partner is an exception to the transfer for value rule.
I - Insured
“C” - Corporation
Dead - Divorce
People - Partner or Partnership
If annuity is purchased and then surrendered before age 59 1/2, amount exceeding basis is subject to ______________.
ordinary income tax and 10% penalty
Company provides non qualified deferred comp plan for employee. Company purchases and owns variable annuity. Annuity accrues gain. Is gain tax deferred?
No. Income on the contract must be treated as ordinary income received. Basis of the contract increases by the gain.
