Insurance Flashcards
Perils
Cause of loss
Hazard
Condition that increases the likelihood of a loss occurring
Types of hazards and definitions
- Moral hazard- character flaw
- Morale hazard- indifference crested because a person is insured
- Physical hazard- tangible condition that increase the probability of a peril occurring
Elements of a valid contract
- Offer and acceptance
- Legal competency
- Legal consideration
- Contract must pertain to a lawful purpose
Subrogation clause
Insured cannot receive compensation from both the insurer and a third party for the Sam claim
The principal of insurable Interest
An insured must have an emotional or financial hardship resulting from damage, loss, or destruction
The principal of indemnity
An insured is only entitled to compensation to the extent of the insured’s financial loss
Warranty
A promise made by the insured to the insured
What are riders and endorsements
Written additions to an insurance contract
Goals of state insurance regulation
Protect the insured, maintain and promote competition, maintain solvency of insurers
Actual cash value
Replacement cost less depreciation,
Coinsurance definition & Formula
when a homeowners policy requires you to cover at least a stated percentage of the property value.
(Face value/ coinsurance) x Loss- deductible
coinsurance= 80% x replacement cost
what does NAIC stand for? and what do they do?
National Association of Insurance Commissioners- provides a watchlist of insurance companies based on financial ratio analysis. has no regulatory power as regulation occurs at state level
Risk Management steps (DIE-DIE)
determine objectives of risk management program, Identify the risk where client is exposed, Evaluate risks a to probability of occurrence and potential loss, determine alternatives, Implement, Evaluate/ monitor/ review
Term Life Policies- (ART) Annual Renewable Term
premiums increase annually. No cash value. Death benefit is fixed at face amount
Term Life Policies- Level Term
Premiums are level for a period of time. no cash value. death benefit is fixed at the face amount of the policy
Term Life Policies- Decreasing Term
premiums are level. no cash value. death benefit decreases over term policy
Whole Life Insurance- Ordinary Life
Pay premiums until death or age 120, death benefit is level throughout policy term, cash value increases to face value
Whole Life Insurance- Limited Pay Life
premiums are higher because insured pays premiums until a certain age.
Whole Life Insurance- Variable Life
cash value is invested,death benefit and cash value fluctuates based on investment performance
Whole Life insurance- (CAWL) Current Assumption Whole Life
Interest sensitive insurance. insurer uses new money rates and new mortality rates to establish premiums. insurer can adjust premium
5 Dividend options
(CRAP-O) cash, Accumulate at interest, reduce premiums, paid up additions, one year term
Life Insurance Nonforfeiture Options
cash surrender value, reduced paid up insurance, extended term insurance
Universal Life insurance
insured can adjust premiums, face val, and cash val. insured does not direct investments. cash val can be used to pay premiums
Modified Endowment contract (MEC)
life insurance policy that fails the 7 pay test. if cumulative premiums paid exceed the premiums due for the time period being considered.
Withdrawal consequences for MEC
withdrawals or loans taxed on LIFO basis
Tax consequences for surrendering life insurance policy prior to death
lump sum- amount above premiums is ordinary income, Interest only- interest taxed as ordinary income, Installment payments- interest portion taxed as ordinary income
Transfer for value exceptions
if transferred to insured, business partner, or to a partnership, corporation where the share holder has ownership. also transfer where no payment was received
Viatical settlement
when a life insurance company allows a terminally ill person to receive an accelerated death benefit under the contract
Penalty for non- qualified medical expense distributions
subject to income tax and 20% penalty if taken before 65. after 65 it is subject to income tax only
HIPPA
Health Insurance Portability and Accountability Act. ability to obtain health insurance when changing jobs without restrictions on preexisting conditions. (changing from group plan to group plan within 62 days)
COBRA
an extension of group insurance with same coverage.
COBRA eligibility
eligible if employee dies, terminated, reduced to part time, separates from spouse, becomes eligible for medicare, dependent child no longer eligible
Res ispa loquitur
“the act speaks for itself” permits the use of reasonable evidence when a specific explanation of negligence is not available.
negligence per se
the act itself constitutes negligence, thereby relieving the burden to prove negligence.
burden proof
initially borne by the injured party
Social Security tax rates
6.2% on wages up to the wage base 1.45% on all wages. 0.9% additional medicare surtax on wage and SE income over thresholds
Retirement Eligibility- Social security
Must be fully insured, meaning worker must ear 40 quarters of coverage. 1 quarter= $1,640 in wages subject to social security
Reduction of benefits (SS) for first 3 years of early retirement
reduced by 5/9 of 1% for each month
Reduction of benefits (SS) for 3 years or more of early retirement
reduced by 5/12 of 1% for each month
Medicare Part A, B
